e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
March 31, 2006
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from
to
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Commission file no
001-32622
GLOBAL CASH ACCESS HOLDINGS,
INC.
(Exact name of Registrant as
specified in its charter)
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Delaware
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20-0723270
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(I.R.S. Employer
I.D. No.)
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3525 East Post Road,
Suite 120
Las Vegas, Nevada
(Address of Principal
Executive Offices)
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89120
(Zip Code)
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Registrants telephone number, including area code:
(800) 833-7110
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Sections 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act.
Large accelerated
filer o Accelerated
filer o Non-accelerated
filer þ
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of May 12, 2006, there were 82,203,272 shares of
the Registrants common stock, $0.001 par value per
share, issued and outstanding.
PART I:
FINANCIAL INFORMATION
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ITEM 1.
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UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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GLOBAL
CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
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March 31,
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December 31,
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2006
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2005
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(Amounts in thousands, except
par value)
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(Unaudited)
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ASSETS
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Cash and cash equivalents
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$
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47,247
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$
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35,123
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Settlement receivables
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23,922
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60,164
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Receivables, other
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6,390
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7,355
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Prepaid and other assets
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10,873
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10,959
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Property, equipment and leasehold
improvements, net
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13,632
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10,579
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Goodwill, net
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156,755
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156,756
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Other intangibles, net
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20,747
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22,006
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Deferred income taxes, net
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203,713
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207,476
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Total assets
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$
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483,279
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$
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510,418
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LIABILITIES AND
STOCKHOLDERS EQUITY
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LIABILITIES:
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Settlement liabilities
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$
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23,997
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$
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59,782
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Accounts payable
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22,731
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20,413
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Accrued expenses
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13,505
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14,178
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Borrowings
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319,101
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321,412
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Total liabilities
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379,334
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415,785
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COMMITMENTS AND CONTINGENCIES
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MINORITY INTEREST
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333
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149
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STOCKHOLDERS EQUITY
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Common stock, $0.001 par
value, 500,000 shares authorized and 82,185 and
81,554 shares outstanding at March 31, 2006 and
December 31, 2005, respectively
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82
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82
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Preferred stock, $0.001 par
value, 50,000 shares authorized and 0 shares
shares outstanding at March 31, 2006 and December 31,
2005, respectively
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Additional paid in capital
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130,998
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128,886
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Accumulated deficit
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(29,247
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)
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(36,210
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)
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Accumulated other comprehensive
income
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1,779
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1,726
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Total stockholders equity
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103,612
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94,484
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Total liabilities and
stockholders equity
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$
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483,279
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$
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510,418
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See notes to unaudited condensed consolidated financial
statements.
3
GLOBAL
CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
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Three Months Ended
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March 31,
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2006
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2005
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(Amounts in thousands, except
per share) (Unaudited)
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REVENUES:
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Cash advance
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$
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67,055
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$
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56,778
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ATM
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53,160
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43,773
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Check services
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7,244
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6,309
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Central Credit and other revenues
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2,376
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2,806
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Total revenues
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129,835
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109,666
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Cost of revenues (exclusive of
depreciation and amortization)
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(91,351
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)
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(72,465
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)
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Operating expenses
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(15,290
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)
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(12,013
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Amortization
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(1,502
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)
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(1,364
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)
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Depreciation
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(1,065
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)
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(1,952
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)
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OPERATING INCOME
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20,627
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21,872
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INTEREST INCOME (EXPENSE), NET
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Interest income
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555
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451
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Interest expense
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(10,248
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)
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(10,932
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)
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Total interest income (expense),
net
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(9,693
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)
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(10,481
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)
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INCOME BEFORE INCOME TAX PROVISION
AND MINORITY OWNERSHIP LOSS
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10,934
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11,391
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INCOME TAX PROVISION
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(4,007
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)
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(4,083
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)
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INCOME BEFORE MINORITY OWNERSHIP
LOSS
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6,927
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7,308
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MINORITY OWNERSHIP LOSS, NET OF TAX
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36
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32
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NET INCOME
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6,963
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7,340
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Foreign currency translation, net
of tax
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53
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(135
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)
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COMPREHENSIVE INCOME
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$
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7,016
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$
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7,205
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Earnings per share
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Basic
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$
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0.09
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$
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0.23
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Diluted
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$
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0.09
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$
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0.10
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Weighted average number of common
shares outstanding
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Basic
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81,556
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32,175
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Diluted
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81,556
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71,699
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See notes to unaudited condensed consolidated financial
statements.
4
GLOBAL
CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
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Three Months Ended
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March 31,
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2006
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2005
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(Amounts in thousands)
(Unaudited)
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CASH FLOWS FROM OPERATING
ACTIVITIES:
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Net income
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$
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6,963
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$
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7,340
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Adjustments to reconcile net
income to cash provided by operating activities:
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Amortization of financing costs
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424
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494
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Amortization of intangibles
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1,502
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1,364
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Depreciation
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1,065
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1,952
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Provision for bad debts
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1,500
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Deferred income taxes
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3,763
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|
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3,625
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Minority ownership loss
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(57
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)
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(50
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)
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Stock-based compensation
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1,961
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Changes in operating assets and
liabilities:
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Settlement receivables
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36,269
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|
|
|
7,184
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|
Receivables, other
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(498
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)
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|
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962
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|
Prepaid and other assets
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(226
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)
|
|
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(2,098
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)
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Settlement liabilities
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(35,833
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)
|
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(6,300
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)
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Accounts payable
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|
2,259
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|
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(1,513
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)
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Accrued expenses
|
|
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(2,493
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)
|
|
|
(5,187
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)
|
|
|
|
|
|
|
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Net cash provided by operating
activities
|
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16,599
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7,773
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CASH FLOWS FROM INVESTING
ACTIVITIES:
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Purchase of property, equipment
and leasehold improvements
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(2,252
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)
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(2,068
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)
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Purchase of other intangibles
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(243
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)
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(353
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)
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Net cash used in investing
activities
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(2,495
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)
|
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(2,421
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)
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CASH FLOWS FROM FINANCING
ACTIVITIES:
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Repayments under credit facility
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(2,310
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)
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(31,500
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)
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Debt issuance costs
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(105
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)
|
|
|
|
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Proceeds from exercise of stock
options
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|
163
|
|
|
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Minority capital contributions
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240
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|
|
|
280
|
|
|
|
|
|
|
|
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Net cash used in financing
activities
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|
(2,012
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)
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|
(31,220
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)
|
|
|
|
|
|
|
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NET EFFECT OF EXCHANGE RATE
CHANGES ON CASH AND CASH EQUIVALENTS
|
|
$
|
32
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|
$
|
11
|
|
|
|
|
|
|
|
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NET INCREASE IN CASH AND CASH
EQUIVALENTS
|
|
|
12,124
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|
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(25,857
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)
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CASH AND CASH
EQUIVALENTS Beginning of period
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35,123
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|
|
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49,577
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CASH AND CASH
EQUIVALENTS End of period
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$
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47,247
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$
|
23,720
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SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
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Cash paid for interest
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$
|
13,008
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|
|
$
|
15,489
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|
|
|
|
|
|
|
|
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Cash paid for income taxes, net of
refunds
|
|
$
|
621
|
|
|
$
|
1,450
|
|
|
|
|
|
|
|
|
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Property acquired with current
accounts payable
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$
|
1,864
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|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited condensed consolidated financial
statements.
5
GLOBAL
CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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|
1.
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BUSINESS
AND BASIS OF PRESENTATION
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Business Global Cash Access Holdings,
Inc. 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 Global Cash Access Holdings, Inc.
together with its consolidated subsidiaries. Holdings was formed
on February 4, 2004, to hold all of the outstanding capital
stock of GCA and to guarantee the obligations under GCAs
senior secured credit facilities. The accompanying condensed
consolidated financial statements present the operations of the
Company as-if Holdings had been in existence for all periods
presented.
GCA is a financial services company that provides cash access
products and services to the gaming industry. The Companys
cash access products and services allow gaming patrons to access
funds through a variety of methods, including credit card cash
advances,
point-of-sale
debit card cash advances, automated teller machine
(ATM) withdrawals, check cashing transactions and
money transfers. These services are provided to patrons at
gaming establishments directly by the Company or through one of
its consolidated subsidiaries. GCAs subsidiaries are:
CashCall Systems Inc. (CashCall), GCA Canada Inc.
(GCA Canada), Global Cash Access (BVI), Inc.
(BVI), Arriva Card, Inc. (Arriva),
Global Cash Access Switzerland A.G. (Swiss Co) and
QuikPlay, LLC (QuikPlay).
The Company also owns and operates one of the leading credit
reporting agencies in the gaming industry, Central Credit, LLC
(Central), and provides credit-information services
and credit-reporting history on gaming patrons to various gaming
establishments. Central operates in both international and
domestic gaming markets.
The accompanying unaudited condensed consolidated financial
statements include the accounts of Holdings and its consolidated
subsidiaries: GCA, CashCall, Central, BVI, Arriva, Swiss Co, GCA
Canada and QuikPlay.
Basis of Presentation The condensed
consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Some
of the information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles in the United States have been
condensed or omitted pursuant to such rules and regulations,
although the Company believes that the disclosures are adequate
to make the information presented not misleading. In the opinion
of management, all adjustments (which include normal recurring
adjustments) necessary for a fair presentation of results for
the interim periods have been made. The results for the three
months ended March 31, 2006 are not necessarily indicative
of results to be expected for the full fiscal year. Certain
amounts in the prior period financial statements and related
notes have been reclassified to conform to the 2006 presentation.
These unaudited condensed consolidated financial statements
should be read in conjunction with the annual consolidated
financial statements and notes thereto included within the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2005.
|
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Principles of Consolidation The
unaudited condensed consolidated financial statements presented
for the three months ended March 31, 2006 and 2005 and as
of December 31, 2005 include the accounts of Global Cash
Access Holdings, Inc., and its subsidiaries. All significant
intercompany transactions and balances have been eliminated in
consolidation.
Earnings Applicable to Common Stock In
accordance with the provisions of Statement of Financial
Accounting Standards (SFAS) No. 128,
Earnings per Share, basic earnings per share is
calculated by dividing net income by the weighted-average number
of common shares outstanding for the period. Diluted earnings
per share reflect the effect of potential common stock, which
consists of convertible preferred stock, non-vested shares and
6
GLOBAL
CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Weighted average common shares
outstanding basic
|
|
|
81,556
|
|
|
|
32,175
|
|
Potential dilution from conversion
of preferred shares
|
|
|
|
|
|
|
39,325
|
|
Potential dilution from equity
grants(1)
|
|
|
|
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding diluted
|
|
|
81,556
|
|
|
|
71,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The potential dilution excludes 619,747 and 0 shares of
non-vested time-based restricted shares and stock options to
acquire 4,119,995 and 3,046,930 shares of common stock at
March 31, 2006 and March 31, 2005, respectively, as
the application of the treasury stock method, as required by
SFAS No. 128, makes them anti-dilutive. |
Stock-Based Compensation On
January 1, 2006, the Company adopted
SFAS No. 123(R), Share-Based Payment, using the
modified prospective transition method. Accordingly, prior
period amounts have not been restated. Prior to the adoption of
SFAS No. 123(R), the Company applied Accounting
Principles Board (APB) No. 25,
Accounting for Stock Issued to Employees, and related
interpretations in accounting for its employee stock-based
compensation. Accordingly, no compensation expense was
recognized because the exercise price of the stock options was
equal to the market price of the stock on the date of grant.
In the first quarter of 2006, the adoption of
SFAS No. 123(R) resulted in incremental stock-based
compensation expense of $2.0 million. The incremental
stock-based compensation expense caused income before income tax
provision and minority loss to decrease by $2.0 million,
net income to decrease by $1.2 million and basic and
diluted earnings per share to decrease by $0.01 per share.
The following table details the effect on net income and
earnings per share had the compensation expense for the employee
stock-based awards been recorded based on the fair value method
under SFAS No. 123, Accounting for Stock-Based
Compensation, in the three months ended March 31, 2005
(amounts in thousands):
|
|
|
|
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
|
2005
|
|
|
Net income, as reported
|
|
$
|
7,340
|
|
Less: total stock-based
compensation determined under fair-value based method for all
awards, net of tax
|
|
|
(881
|
)
|
|
|
|
|
|
Pro forma net income
|
|
$
|
6,459
|
|
|
|
|
|
|
Pro forma earnings per share
|
|
|
|
|
Basic
|
|
$
|
0.20
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.09
|
|
|
|
|
|
|
Pro forma weighted average number
of common shares outstanding
|
|
|
|
|
Basic
|
|
|
32,175
|
|
Diluted
|
|
|
71,699
|
|
Recently Issued Accounting
Pronouncements In February 2006, the
Financial Accounting Standards Board (FASB)
SFAS No. 155, Accounting for Certain Hybrid
Financial Instruments, an amendment of FASB Statements
No. 133 and 140. The provisions of SFAS No. 155
are effective for all financial instruments acquired or issued
after the beginning of the first fiscal year after
September 15, 2006. SFAS No. 155 will be
effective for the company
7
GLOBAL
CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
beginning in the first quarter of 2007. This pronouncement
primarily resolves certain issues addressed in the
implementation of SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, concerning
beneficial interests in securitized financial assets. The
Statement is effective for all financial instruments acquired,
issued, or subject to a remeasurement event occurring after the
beginning of the 2007 fiscal year. The Company is evaluating any
future effect of this pronouncement.
|
|
3.
|
ATM
FUNDING AGREEMENTS
|
Bank of America Amended Treasury Services
Agreement On March 8, 2004, the
Company entered into an Amendment of the Treasury Services
Agreement with Bank of America, N.A. that allowed for the
Company to utilize up to $300 million in funds owned by
Bank of America to provide the currency needed for normal
operating requirements for all the Companys ATMs. For use
of these funds, GCA pays Bank of America a cash usage fee equal
to the average daily balance of funds utilized multiplied by the
one-month LIBOR rate plus 25 basis points. The cash usage
fee is included within interest expense in the unaudited
condensed consolidated statements of income. The cash usage
interest rate in effect at March 31, 2006 was 5.1%. The
Company is required to maintain insurance to protect the Company
and Bank of America from the risk of loss of cash utilized in
the ATMs. The Company is self-insured related to this risk. For
the year ended December 31, 2005 and the three months ended
March 31, 2006, the Company had incurred no losses related to
this self insurance.
Site Funded ATMs GCA operates some ATMs
at customer locations where the customer provides the cash
required for ATM operational needs. GCA is required to reimburse
the customer for the amount of cash dispensed from these
site-funded ATMs. As of March 31, 2006 and
December 31, 2005, GCA operated 244 and 203 ATMs,
respectively, that were site funded.
|
|
4.
|
COMMITMENTS
AND CONTINGENCIES
|
Litigation
Claims and Assessments
Canadian Goods and Services Tax
(GST) In April 2004, CashCall
was notified through one of its customers that the Canadian
Revenue Agency (CRA) Appeals Division had taken a
position, on audit of the customers two locations, that
the customer was liable for GST tax on commissions it received
in connection with the cash advance services provided by
CashCall. The CRAs position is disputed by both CashCall
and the customer based upon their interpretation of the Canadian
Excise Tax Act (ETA).
In December 2004, the Company paid the amount requested related
to the customer, and the customer remitted the tax to the CRA.
In February 2005, the Company filed a refund claim for taxes
paid in error with CRA. This claim was denied as expected, and
the Company is currently defending the rebate claim.
The Company believes the transactions performed in Canada are
financial services transactions specifically exempted by the ETA
and therefore not GST taxable. As the Company has paid these
obligations and as there is uncertainty related to the ability
to recover these amounts through the refund claim and appeals
process, the Company deemed it appropriate to expense this
payment and accrue a liability related to future payments for
this customer.
Accordingly, in the three months ended March 31, 2006 and
2005, the Company has recorded $0.1 million and
$1.7 million, respectively, in operating expenses related
to this potential tax exposure in the accompanying consolidated
income statements.
Patent Infringement Litigation On
October 22, 2004, we and USA Payments, as co-plaintiffs,
filed a complaint in United States District Court, District of
Nevada against U.S. Bancorp d/b/a U.S. Bank, Certegy Inc.,
Certegy Check Services, Inc., Game Financial Corporation and
GameCash, Inc. alleging the infringement of the patented
3-in-1 rollover functionality. In this litigation,
we are seeking an injunction against future infringement of the
patent and recovery of damages as a result of past infringement
of the patent. In its response, the defendants have denied
infringement and have asserted patent invalidity. In addition,
the defendants have asserted various antitrust and unfair
competition counterclaims.
8
GLOBAL
CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Compliance Letters from MasterCard International, Inc. and
Visa USA In the normal course of business,
the Company routinely receives letters from MasterCard
International, Inc. and Visa USA (the Associations)
regarding non-compliance with various aspects of the respective
Associations bylaws and regulations as they relate to
transaction processing. The Company is periodically involved in
discussions with its sponsoring bank and the Associations to
resolve these issues. It is the opinion of management that all
of the issues raised by the Associations will be resolved in the
normal course of business and related changes to the bankcard
transaction processing, if any, will not result in material
adverse impact to the financial results of the Company.
The Company is threatened with or named as a defendant in
various lawsuits in the ordinary course of business. It is not
possible to determine the ultimate disposition of these matters;
however, management is of the opinion that the final resolution
of any threatened or pending litigation is not likely to have a
material adverse effect on the financial position, results of
operations or cash flows of the Company.
Registration
Agreement
The Company and some of its stockholders are party to a
Registration Agreement. The Registration Agreement provides the
stockholders with rights to cause the Company to register their
shares of Common Stock on a registration statement filed with
the Securities and Exchange Commission. Under the terms of this
agreement, some holders of registration rights may require the
Company to file a registration statement under the Securities
Act at the Companys expense with respect to their shares
of Common Stock. Under this agreement, the Company has agreed to
bear all registration expenses (other than underwriting
discounts and commissions and fees), and specific fees and
disbursements of counsel of the holders of registration rights.
The Company has agreed to indemnify the holders of registration
rights against specific liabilities under the Securities Act.
Arriva
Origination Commitments
Arriva entered into separate agreements with CIT Bank and with
Fiserv Solutions, Inc., all of which are effective as of March
2006, related to the issuance, underwriting and processing of
the private label credit card we are expecting, through Arriva,
to commence providing later in 2006. Under the terms of the
agreements with CIT Bank, Arriva is committed to pay CIT Bank
for $0.2 million of consumer origination transactions and
$0.1 million in other operating expenses during the first
18 months of the term. After meeting these commitments,
Arriva may cancel these agreements during the first
18 months of the term without any additional penalty. Under
the terms of the agreement with Fiserv Solutions, Inc., Arriva
is also committed to pay $0.5 million in termination fees
to Fiserv Solutions, Inc. if the arrangement is terminated
during the first 18 months of the term.
Senior Secured Credit Facility In April
2005, GCA and Holdings entered into an Amended and Restated
Credit Facility (the Amended Credit Facility).
Borrowings under the Amended Credit Facility bear interest, at
the Companys option, at either i) a base rate plus an
applicable margin or ii) LIBOR plus an applicable margin.
In January 2006, the Company received a credit rating upgrade
and had reduced the overall leverage ratio to qualify for a
decrease of the applicable margin applied to the borrowings
under the term loan portion and the revolving portion of the
Amended Credit Facility. Beginning April 2006, the applicable
margin for LIBOR loans was reduced from 2.25% to 1.75% while the
applicable margin for base rate loans was reduced from 1.25% to
0.75%.
In the three months ended March 31, 2006, the Company made
repayments of $2.3 million on the term loan, and the
interest rate in effect at March 31, 2006 was 7.08%. In
addition to scheduled quarterly principal repayments and based
upon the Companys leverage ratio at December 31,
2005, GCA is required to make an annual repayment of 50% of the
excess cash flow as defined in the Amended Credit Facility. As
our additional voluntary prepayments in 2005 exceeded our
required excess cash flow payment for 2005, no excess cash flow
payment was required in the three months ended March 31,
2006.
Under the terms of our Amended Credit Facility we are required
to maintain financial covenants related to our leverage ratio,
senior leverage ratio and fixed charge cover ratio.
Additionally, we have a covenant related to our
9
GLOBAL
CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
allowable capital expenditures. The Company believes it was in
compliance with all of its debt covenants as of March 31,
2006.
As of March 31, 2006, the Company had $3.1 million in
letters of credit issued and outstanding, which reduced amounts
available under the revolving portion of the Amended Credit
Facility.
Stock Options The Company has issued
stock options to directors, officers and key employees under the
2005 Stock Incentive Plan (the 2005 Plan).
Generally, options under the 2005 Plan (other than those granted
to non-employee directors) will vest at a rate of 25% of the
shares underlying the option after one year and the remaining
shares vest in equal portions over the following 36 months,
such that all shares are vested after four years. Stock options
are issued at the current market price on the date of grant,
with a contractual term of 10 years. The grant date fair
value is calculated using the Black-Scholes option valuation
model. In addition to the 2005 Plan, the Company has granted our
Chief Financial Officer options to acquire 722,215 shares
of common stock as part of his employment agreement in 2004. The
terms of these options are similar to those found in the 2005
Plan.
The fair value of the options granted during the three months
ended March 31, 2006 and 2005 were estimated using the
following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Expected dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected volatility
|
|
|
50.0
|
%
|
|
|
50.0
|
%
|
Risk-free interest rate
|
|
|
4.5
|
%
|
|
|
3.7
|
%
|
Expected life of stock options (in
years)
|
|
|
6.3
|
|
|
|
6.0
|
|
The expected life (estimated period of time outstanding) of
options granted was estimated using the expected exercise
behavior of employees.
The expected volatility was based on an estimate of the
volatility for similar companies within our industry that had
recently gone through the initial public offering process. The
risk-free rate is based on the U.S. Treasury yield curve in
effect at the time of grant.
A summary of award activity under the Companys stock
option plans as of March 31, 2006 and changes during the
three month period is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Life
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Prices
|
|
|
Remaining
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Outstanding December 31,
2005
|
|
|
4,079,145
|
|
|
$
|
12.94
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
55,000
|
|
|
|
15.79
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(11,650
|
)
|
|
|
13.99
|
|
|
|
|
|
|
|
|
|
Forfieted
|
|
|
(2,500
|
)
|
|
|
13.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding March 31,
2006
|
|
|
4,119,995
|
|
|
$
|
12.97
|
|
|
|
8.8 years
|
|
|
$
|
27,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable March 31,
2006
|
|
|
1,148,690
|
|
|
$
|
12.43
|
|
|
|
8.7 years
|
|
|
$
|
7,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant-date fair value of options granted
during the three months ended March 31, 2006 and 2005 was
$8.56 and $7.27, respectively.
We received $0.2 million and $0 in cash from the exercise
of stock options during the three months ended March 31,
2006 and 2005, respectively. The total intrinsic value of
options exercised during the three months ended
10
GLOBAL
CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31, 2006 and 2005 was $0.1 million and $0,
respectively. As of March 31, 2006, there was
$18.7 million in unrecognized compensation expense related
to options expected to vest. That cost is expected to be
recognized on a straight-line basis over a weighted average
period of 2.7 years.
Restricted Stock In March 2006, the
Company awarded 619,747 shares of time-based restricted
common stock to employees. These shares will vest over a period
of four years. A summary of non-vested share awards for the
Companys time-based restricted shares as of March 31,
2006 and changes during the three month period is as follows:
|
|
|
|
|
|
|
Shares
|
|
|
|
Outstanding
|
|
|
Balance December 31,
2005
|
|
|
|
|
Granted
|
|
|
619,747
|
|
Vested
|
|
|
|
|
Forfieted
|
|
|
|
|
|
|
|
|
|
Balance March 31,
2006
|
|
|
619,747
|
|
|
|
|
|
|
There were no time-based restricted shares vested during the
three months ended March 31, 2006 or 2005. As of
March 31, 2006, there was $9.6 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
3.8 years.
|
|
7.
|
RELATED
PARTY TRANSACTIONS
|
M&C International (M&C) is the owner of
approximately 29.9% of the outstanding equity interests of
Holdings. An affiliate of Bank of America Corporation owns
approximately 3.8% of the equity interests of Holdings.
The Company made payments for software development costs and
system maintenance to Infonox on the Web (Infonox)
pursuant to agreements with Infonox. At the time we entered into
these agreements and during the periods presented, Infonox was
controlled by the principals of M&C and family members of
one of our directors. These family members now own approximately
60% of the ownership interests, and hold two of the three
director seats, of Infonox. The software development costs are
capitalized and reflected in intangible assets in the unaudited
condensed consolidated balance sheets and the system maintenance
is classified in operating expenses in the unaudited condensed
consolidated statements of income.
The Company obtains transaction processing services from USA
Payments, a company controlled by the principals of M&C,
pursuant to the Amended and Restated Agreement for Electronic
Payment Processing. Under terms of this agreement, GCA pays a
fee to USA Payments for transaction processing services, which
is reflected in cost of revenues (exclusive of depreciation and
amortization), and pays other directly identifiable operating
expenses that are included within operating expenses in the
unaudited condensed consolidated statements of income. Pursuant
to this agreement, GCA is obligated to pay USA Payments a fixed
monthly processing fee and transaction fees totaling
$2.3 million annually through the termination of this
agreement in March 2014. Additionally, we reimburse USA Payments
for invoices related mainly to gateway fees and other processing
charges incurred on behalf of the Company from unrelated third
parties; these expenses are also classified as part of cost of
revenues (exclusive of depreciation and amortization).
The Company uses Bank of America, N.A., an affiliate of Bank of
America Corporation, for general corporate banking purposes and
is charged monthly servicing fees for these services, which are
included in operating expenses. In connection with the Amendment
of the Treasury Services Agreement, GCA obtains cash for our
ATMs from Bank of America, N.A. The fees paid to Bank of America
for the preparation of the cash used in our ATMs is included
within operating expenses, while the cash usage fee is included
as part of interest expense.
11
GLOBAL
CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In April 2005, Banc of America Securities LLC, an affiliate of
Bank of America Corporation, acted as financial advisor to the
Company in connection with the Amended Credit Facility. As a fee
for those services, we are obligated to pay Banc of America
Securities 50% of the difference between the interest expense we
pay under the Amended Credit Facility and what we would have
paid under the prior credit facility. Our obligation to pay this
fee ends in April 2006. During the three months ended
March 31, 2006, the Company incurred $0.1 million in
fees related to the financial advisory services provided by Banc
of America Securities LLC.
The following table represents the transactions with related
parties for the three months ended March 31, 2006 and 2005
(amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
Name of
|
|
|
|
March 31,
|
Related Party
|
|
Description of
Transaction
|
|
2006
|
|
2005
|
|
M&C Affiliates:
|
|
|
|
|
|
|
|
|
|
|
Infonox on the Web
|
|
Software development costs and
maintenance expense
|
|
$
|
412
|
|
|
$
|
440
|
|
USA Payments
|
|
Transaction processing charges
|
|
|
853
|
|
|
|
714
|
|
USA Payments
|
|
Pass through billing related to
gateway fees, telecom and other items
|
|
|
275
|
|
|
|
294
|
|
Bank of America,
N.A.:
|
|
|
|
|
|
|
|
|
|
|
Bank of America, N.A.
|
|
Bank fees and cash preparation
fees for cash accounts maintained
|
|
|
401
|
|
|
|
435
|
|
Bank of America, N.A.
|
|
Cash usage fee
|
|
$
|
3,527
|
|
|
$
|
1,982
|
|
The following table details the amounts due from (to) these
related parties that are recorded as part of receivables, other,
accounts payable and accrued expenses in the unaudited condensed
consolidated balance sheets (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
M&C and related companies
|
|
$
|
31
|
|
|
$
|
11
|
|
Bank of America, N.A
|
|
|
28
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Total included within receivables,
other
|
|
$
|
59
|
|
|
$
|
14
|
|
|
|
|
|
|
|
|
|
|
USA Payments
|
|
$
|
(386
|
)
|
|
$
|
(345
|
)
|
Infonox on the Web
|
|
|
(128
|
)
|
|
|
(171
|
)
|
Bank of America, N.A
|
|
|
(192
|
)
|
|
|
(150
|
)
|
|
|
|
|
|
|
|
|
|
Total included within accounts
payable and accrued expenses
|
|
$
|
(706
|
)
|
|
$
|
(666
|
)
|
|
|
|
|
|
|
|
|
|
Operating segments as defined by SFAS No. 131,
Disclosures About Segments of an Enterprise and Related
Information, are components of an enterprise about which
separate financial information is available that is evaluated
regularly by the chief operating decision maker, or
decision-making group, in deciding how to allocate resources and
in assessing performance. The Companys chief operating
decision-making group consists of the Chief Executive Officer
and Chief Financial Officer. The operating segments are reviewed
separately because each represents products that can be, and
often are, marketed and sold separately to our customers.
The Company operates in four distinct business segments: cash
advance, ATM, check services and credit reporting services.
These segments are monitored separately by management for
performance against its internal forecast and are consistent
with the Companys internal management reporting.
Other lines of business, none of which exceed the established
materiality for segment reporting, include Western Union, direct
marketing and QuikPlay, among others.
12
GLOBAL
CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Companys business is predominantly domestic, with no
specific regional concentrations.
Major customers On June 13, 2005,
our largest customer, Harrahs Entertainment, Inc.
(Harrahs) completed its acquisition of Caesars
Entertainment, Inc. (Caesars), another customer of
ours. For the three months ended March 31, 2006 and 2005,
the combined revenues from all segments for this customer,
assuming it had been combined for all periods presented, would
have been approximately $23.0 million and
$21.0 million, respectively representing 17.7% and 19.1% of
the Companys total consolidated revenues, respectively. On
a historical basis, the combined revenues from all segments for
Harrahs for the three months ended March 31, 2005 was
$12.6 million representing 11.5% of the Companys
total consolidated revenues.
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 for the three months ended March 31, 2006 and
2005 and total assets by operating segment as of March 31,
2006 and December 31, 2005 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
Check
|
|
|
Credit
|
|
|
|
|
|
|
|
|
|
Advance
|
|
|
ATM
|
|
|
Services
|
|
|
Reporting
|
|
|
Other
|
|
|
Total
|
|
|
Three Months Ended
March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
67,055
|
|
|
$
|
53,160
|
|
|
$
|
7,244
|
|
|
$
|
2,075
|
|
|
$
|
301
|
|
|
$
|
129,835
|
|
Depreciation and amortization
|
|
|
(972
|
)
|
|
|
(1,456
|
)
|
|
|
(9
|
)
|
|
|
(20
|
)
|
|
|
(110
|
)
|
|
|
(2,567
|
)
|
Operating income (loss)
|
|
|
10,253
|
|
|
|
7,183
|
|
|
|
2,531
|
|
|
|
1,075
|
|
|
|
(415
|
)
|
|
|
20,627
|
|
Interest income
|
|
|
555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
555
|
|
Interest expense
|
|
|
(3,471
|
)
|
|
|
(6,279
|
)
|
|
|
(375
|
)
|
|
|
(107
|
)
|
|
|
(16
|
)
|
|
|
(10,248
|
)
|
Income taxes
|
|
|
(2,701
|
)
|
|
|
(339
|
)
|
|
|
(790
|
)
|
|
|
(355
|
)
|
|
|
178
|
|
|
|
(4,007
|
)
|
Minority ownership loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
36
|
|
Net income (loss)
|
|
$
|
4,636
|
|
|
$
|
565
|
|
|
$
|
1,366
|
|
|
$
|
613
|
|
|
$
|
(217
|
)
|
|
$
|
6,963
|
|
Three Months Ended
March 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
56,778
|
|
|
$
|
43,773
|
|
|
$
|
6,309
|
|
|
$
|
2,354
|
|
|
$
|
452
|
|
|
$
|
109,666
|
|
Depreciation and amortization
|
|
|
(1,182
|
)
|
|
|
(2,001
|
)
|
|
|
(9
|
)
|
|
|
(3
|
)
|
|
|
(121
|
)
|
|
|
(3,316
|
)
|
Operating income
|
|
|
11,310
|
|
|
|
6,804
|
|
|
|
2,351
|
|
|
|
1,292
|
|
|
|
115
|
|
|
|
21,872
|
|
Interest income
|
|
|
451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
451
|
|
Interest expense
|
|
|
(4,634
|
)
|
|
|
(5,554
|
)
|
|
|
(515
|
)
|
|
|
(192
|
)
|
|
|
(37
|
)
|
|
|
(10,932
|
)
|
Income taxes
|
|
|
(2,566
|
)
|
|
|
(450
|
)
|
|
|
(661
|
)
|
|
|
(396
|
)
|
|
|
(10
|
)
|
|
|
(4,083
|
)
|
Minority ownership loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
|
|
32
|
|
Net income
|
|
$
|
4,561
|
|
|
$
|
800
|
|
|
$
|
1,175
|
|
|
$
|
704
|
|
|
$
|
100
|
|
|
$
|
7,340
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
Total Assets
|
|
2006
|
|
|
2005
|
|
|
Cash advance
|
|
$
|
298,606
|
|
|
$
|
320,688
|
|
ATM
|
|
|
138,573
|
|
|
|
142,626
|
|
Check services
|
|
|
2,518
|
|
|
|
3,886
|
|
Credit reporting
|
|
|
43,551
|
|
|
|
43,162
|
|
Other
|
|
|
31
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
483,279
|
|
|
$
|
510,418
|
|
|
|
|
|
|
|
|
|
|
13
GLOBAL
CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Money
Transmitter Licenses
GCA does not hold any money transmitter licenses, but currently
issues negotiable instruments as an agent of Integrated Payment
Systems Inc. and Integrated Payment Systems Canada, Inc.
(IPS), who holds the money transmitter licenses. In
January 2006, GCA was notified that IPS would not be renewing
the existing contract that expires on March 31, 2006. In
March 2006, GCA entered into a transition agreement with IPS
that extends the terms of the existing agreement until September
2006. On May 10, 2006, GCA and CashCall extended their
agreement with IPS until December 31, 2006. GCA is
considering obtaining money transmitter licenses for each of the
states in which it currently has operations.
Registration
Statement
On May 11, 2006, the Company filed a Registration Statement
on
Form S-1
covering a proposed offering of up to 11,960,000 shares of
common stock to be sold by stockholders, with no shares to be
sold by the Company.
|
|
10.
|
GUARANTOR
INFORMATION
|
In March 2004, GCA issued $235 million in aggregate
principal amount of
83/4% senior
subordinated notes due 2012 (the Notes). The Notes
are guaranteed by all of GCAs existing domestic 100% owned
subsidiaries. In addition, effective upon the closing of the
Companys initial public offering of common stock, Holdings
guaranteed, on a subordinated basis, GCAs obligations
under the Notes. These guarantees are full, unconditional, joint
and several. CashCall, GCA Canada, BVI and Swiss Co, which are
wholly owned non-domestic subsidiaries, and QuikPlay, which is a
consolidated joint venture, do not guaranty the Notes. The
following consolidating schedules present separate unaudited
condensed financial statement information on a combined basis
for the parent only, the issuer, as well as the Companys
guarantor subsidiaries and non-guarantor subsidiaries and
affiliate, as of March 31, 2006 and December 31, 2005,
and for the three months ended March 31, 2006 and 2005.
14
GLOBAL
CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
GLOBAL
CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATING SCHEDULE BALANCE SHEET
INFORMATION
MARCH 31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
Non-
|
|
|
Elimination
|
|
|
|
|
|
|
Parent
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Entries*
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
|
(Unaudited)
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
43,531
|
|
|
$
|
45
|
|
|
$
|
3,671
|
|
|
$
|
|
|
|
$
|
47,247
|
|
Settlement receivables
|
|
|
|
|
|
|
23,429
|
|
|
|
|
|
|
|
493
|
|
|
|
|
|
|
|
23,922
|
|
Receivables, other
|
|
|
10
|
|
|
|
7,709
|
|
|
|
24,891
|
|
|
|
250
|
|
|
|
(26,470
|
)
|
|
|
6,390
|
|
Prepaid and other assets
|
|
|
|
|
|
|
10,865
|
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
10,873
|
|
Investment in subsidiaries
|
|
|
138,026
|
|
|
|
69,117
|
|
|
|
|
|
|
|
|
|
|
|
(207,143
|
)
|
|
|
|
|
Property, equipment and leasehold
improvements, net
|
|
|
|
|
|
|
13,505
|
|
|
|
21
|
|
|
|
106
|
|
|
|
|
|
|
|
13,632
|
|
Goodwill, net
|
|
|
|
|
|
|
116,574
|
|
|
|
39,470
|
|
|
|
711
|
|
|
|
|
|
|
|
156,755
|
|
Other intangibles, net
|
|
|
|
|
|
|
20,417
|
|
|
|
183
|
|
|
|
147
|
|
|
|
|
|
|
|
20,747
|
|
Deferred income taxes, net
|
|
|
|
|
|
|
203,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
203,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
138,036
|
|
|
$
|
508,860
|
|
|
$
|
64,614
|
|
|
$
|
5,382
|
|
|
$
|
(233,613
|
)
|
|
$
|
483,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS (DEFICIT) EQUITY
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement liabilities
|
|
$
|
|
|
|
$
|
23,641
|
|
|
$
|
|
|
|
$
|
356
|
|
|
$
|
|
|
|
$
|
23,997
|
|
Accounts payable
|
|
|
|
|
|
|
22,524
|
|
|
|
14
|
|
|
|
193
|
|
|
|
|
|
|
|
22,731
|
|
Accrued expenses
|
|
|
|
|
|
|
42,862
|
|
|
|
316
|
|
|
|
|
|
|
|
(29,673
|
)
|
|
|
13,505
|
|
Borrowings
|
|
|
|
|
|
|
319,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
319,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
|
|
408,128
|
|
|
|
330
|
|
|
|
549
|
|
|
|
(29,673
|
)
|
|
|
379,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MINORITY INTEREST
|
|
|
|
|
|
|
333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
333
|
|
STOCKHOLDERS EQUITY
|
|
|
138,036
|
|
|
|
100,399
|
|
|
|
64,284
|
|
|
|
4,833
|
|
|
|
(203,940
|
)
|
|
|
103,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
138,036
|
|
|
$
|
508,860
|
|
|
$
|
64,614
|
|
|
$
|
5,382
|
|
|
$
|
(233,613
|
)
|
|
$
|
483,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Eliminations include intercompany investments and management fees |
15
GLOBAL
CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
GLOBAL
CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATING SCHEDULE BALANCE SHEET
INFORMATION
DECEMBER 31,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
Non-
|
|
|
Elimination
|
|
|
|
|
|
|
Parent
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Entries*
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
|
(Unaudited)
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
32,237
|
|
|
$
|
276
|
|
|
$
|
2,610
|
|
|
$
|
|
|
|
$
|
35,123
|
|
Settlement receivables
|
|
|
|
|
|
|
59,236
|
|
|
|
|
|
|
|
928
|
|
|
|
|
|
|
|
60,164
|
|
Receivables, other
|
|
|
|
|
|
|
136,213
|
|
|
|
22,737
|
|
|
|
37
|
|
|
|
(151,632
|
)
|
|
|
7,355
|
|
Prepaid and other assets
|
|
|
|
|
|
|
10,946
|
|
|
|
1
|
|
|
|
12
|
|
|
|
|
|
|
|
10,959
|
|
Investment in subsidiaries
|
|
|
223,378
|
|
|
|
66,707
|
|
|
|
|
|
|
|
|
|
|
|
(290,085
|
)
|
|
|
|
|
Property, equipment and leasehold
improvements, net
|
|
|
|
|
|
|
10,485
|
|
|
|
3
|
|
|
|
91
|
|
|
|
|
|
|
|
10,579
|
|
Goodwill, net
|
|
|
|
|
|
|
116,574
|
|
|
|
39,471
|
|
|
|
711
|
|
|
|
|
|
|
|
156,756
|
|
Other intangibles, net
|
|
|
|
|
|
|
21,714
|
|
|
|
128
|
|
|
|
164
|
|
|
|
|
|
|
|
22,006
|
|
Deferred income taxes, net
|
|
|
|
|
|
|
207,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
207,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
223,378
|
|
|
$
|
661,588
|
|
|
$
|
62,616
|
|
|
$
|
4,553
|
|
|
$
|
(441,717
|
)
|
|
$
|
510,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement liabilities
|
|
$
|
|
|
|
$
|
59,017
|
|
|
$
|
|
|
|
$
|
765
|
|
|
$
|
|
|
|
$
|
59,782
|
|
Accounts payable
|
|
|
|
|
|
|
20,103
|
|
|
|
70
|
|
|
|
240
|
|
|
|
|
|
|
|
20,413
|
|
Accrued expenses
|
|
|
|
|
|
|
37,529
|
|
|
|
58
|
|
|
|
(671
|
)
|
|
|
(22,738
|
)
|
|
|
14,178
|
|
Borrowings
|
|
|
|
|
|
|
321,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
321,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
|
|
438,061
|
|
|
|
128
|
|
|
|
334
|
|
|
|
(22,738
|
)
|
|
|
415,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MINORITY INTEREST
|
|
|
|
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
149
|
|
STOCKHOLDERS EQUITY
|
|
|
223,378
|
|
|
|
223,378
|
|
|
|
62,488
|
|
|
|
4,219
|
|
|
|
(418,979
|
)
|
|
|
94,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
223,378
|
|
|
$
|
661,588
|
|
|
$
|
62,616
|
|
|
$
|
4,553
|
|
|
$
|
(441,717
|
)
|
|
$
|
510,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Eliminations include intercompany investments and management fees |
16
GLOBAL
CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
GLOBAL
CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATING SCHEDULE STATEMENT OF INCOME
INFORMATION
THREE
MONTHS ENDED MARCH 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations*
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
|
(Unaudited)
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash advance
|
|
$
|
|
|
|
$
|
65,774
|
|
|
$
|
|
|
|
$
|
1,281
|
|
|
$
|
|
|
|
$
|
67,055
|
|
ATM
|
|
|
|
|
|
|
53,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,160
|
|
Check services
|
|
|
|
|
|
|
4,913
|
|
|
|
2,331
|
|
|
|
|
|
|
|
|
|
|
|
7,244
|
|
Central Credit and other revenues
|
|
|
7,028
|
|
|
|
2,345
|
|
|
|
2,075
|
|
|
|
23
|
|
|
|
(9,095
|
)
|
|
|
2,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
7,028
|
|
|
|
126,192
|
|
|
|
4,406
|
|
|
|
1,304
|
|
|
|
(9,095
|
)
|
|
|
129,835
|
|
Cost of revenues (exclusive of
depreciation and amortization)
|
|
|
|
|
|
|
(89,000
|
)
|
|
|
(1,565
|
)
|
|
|
(786
|
)
|
|
|
|
|
|
|
(91,351
|
)
|
Operating expenses
|
|
|
|
|
|
|
(13,974
|
)
|
|
|
(1,028
|
)
|
|
|
(439
|
)
|
|
|
151
|
|
|
|
(15,290
|
)
|
Amortization
|
|
|
|
|
|
|
(1,468
|
)
|
|
|
(17
|
)
|
|
|
(17
|
)
|
|
|
|
|
|
|
(1,502
|
)
|
Depreciation
|
|
|
|
|
|
|
(1,054
|
)
|
|
|
(1
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
(1,065
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
|
7,028
|
|
|
|
20,696
|
|
|
|
1,795
|
|
|
|
52
|
|
|
|
(8,944
|
)
|
|
|
20,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST INCOME (EXPENSE), NET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
527
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
555
|
|
Interest expense
|
|
|
|
|
|
|
(10,248
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,248
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income (expense),
net
|
|
|
|
|
|
|
(9,721
|
)
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
(9,693
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAX PROVISION
AND MINORITY OWNERSHIP LOSS
|
|
|
7,028
|
|
|
|
10,975
|
|
|
|
1,795
|
|
|
|
80
|
|
|
|
(8,944
|
)
|
|
|
10,934
|
|
INCOME TAX PROVISION
|
|
|
|
|
|
|
(3,949
|
)
|
|
|
|
|
|
|
(58
|
)
|
|
|
|
|
|
|
(4,007
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE MINORITY OWNERSHIP
LOSS
|
|
|
7,028
|
|
|
|
7,026
|
|
|
|
1,795
|
|
|
|
22
|
|
|
|
(8,944
|
)
|
|
|
6,927
|
|
MINORITY OWNERSHIP LOSS, NET OF TAX
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
7,028
|
|
|
$
|
7,062
|
|
|
$
|
1,795
|
|
|
$
|
22
|
|
|
$
|
(8,944
|
)
|
|
$
|
6,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Eliminations include earnings on subsidiaries and management fees |
17
GLOBAL
CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
GLOBAL
CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATING SCHEDULE STATEMENT OF
INCOME INFORMATION
THREE
MONTHS ENDED MARCH 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations*
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
|
(Unaudited)
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash advance
|
|
$
|
|
|
|
$
|
55,584
|
|
|
$
|
|
|
|
$
|
1,194
|
|
|
$
|
|
|
|
$
|
56,778
|
|
ATM
|
|
|
|
|
|
|
43,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,773
|
|
Check services
|
|
|
|
|
|
|
6,217
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
6,309
|
|
Central Credit and other revenues
|
|
|
7,340
|
|
|
|
1,924
|
|
|
|
2,354
|
|
|
|
21
|
|
|
|
(8,833
|
)
|
|
|
2,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
7,340
|
|
|
|
107,498
|
|
|
|
2,446
|
|
|
|
1,215
|
|
|
|
(8,833
|
)
|
|
|
109,666
|
|
Cost of revenues (exclusive of
depreciation and amortization)
|
|
|
|
|
|
|
(71,648
|
)
|
|
|
(50
|
)
|
|
|
(767
|
)
|
|
|
|
|
|
|
(72,465
|
)
|
Operating expenses
|
|
|
|
|
|
|
(10,785
|
)
|
|
|
(1,040
|
)
|
|
|
(312
|
)
|
|
|
124
|
|
|
|
(12,013
|
)
|
Amortization
|
|
|
|
|
|
|
(1,324
|
)
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,364
|
)
|
Depreciation
|
|
|
|
|
|
|
(1,949
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
(1,952
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
|
7,340
|
|
|
|
21,792
|
|
|
|
1,316
|
|
|
|
133
|
|
|
|
(8,709
|
)
|
|
|
21,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST INCOME (EXPENSE), NET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
427
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
451
|
|
Interest expense
|
|
|
|
|
|
|
(10,932
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,932
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income (expense),
net
|
|
|
|
|
|
|
(10,505
|
)
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
(10,481
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAX PROVISION
AND MINORITY OWNERSHIP LOSS
|
|
|
7,340
|
|
|
|
11,287
|
|
|
|
1,316
|
|
|
|
157
|
|
|
|
(8,709
|
)
|
|
|
11,391
|
|
INCOME TAX PROVISION
|
|
|
|
|
|
|
(3,979
|
)
|
|
|
|
|
|
|
(104
|
)
|
|
|
|
|
|
|
(4,083
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE MINORITY OWNERSHIP
LOSS, NET OF TAX
|
|
|
7,340
|
|
|
|
7,308
|
|
|
|
1,316
|
|
|
|
53
|
|
|
|
(8,709
|
)
|
|
|
7,308
|
|
MINORITY OWNERSHIP LOSS, NET OF TAX
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
7,340
|
|
|
$
|
7,340
|
|
|
$
|
1,316
|
|
|
$
|
53
|
|
|
$
|
(8,709
|
)
|
|
$
|
7,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Eliminations include earnings on subsidiaries and management fees |
18
GLOBAL
CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
GLOBAL
CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATING SCHEDULE STATEMENT OF CASH
FLOWS
THREE
MONTHS ENDED MARCH 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations*
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
|
(Unaudited)
|
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
7,028
|
|
|
$
|
7,062
|
|
|
$
|
1,795
|
|
|
$
|
22
|
|
|
$
|
(8,944
|
)
|
|
$
|
6,963
|
|
Adjustments to reconcile net income
to cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of financing costs
|
|
|
|
|
|
|
424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
424
|
|
Amortization of intangibles
|
|
|
|
|
|
|
1,468
|
|
|
|
17
|
|
|
|
17
|
|
|
|
|
|
|
|
1,502
|
|
Depreciation
|
|
|
|
|
|
|
1,054
|
|
|
|
1
|
|
|
|
10
|
|
|
|
|
|
|
|
1,065
|
|
Write-off of bad debt
|
|
|
|
|
|
|
|
|
|
|
1,500
|
|
|
|
|
|
|
|
|
|
|
|
1,500
|
|
Deferred income taxes
|
|
|
|
|
|
|
3,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,763
|
|
Equity income in subsidiaries
|
|
|
(7,028
|
)
|
|
|
(1,916
|
)
|
|
|
|
|
|
|
|
|
|
|
8,944
|
|
|
|
|
|
Minority ownership loss
|
|
|
|
|
|
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(57
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
1,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,961
|
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement receivables
|
|
|
|
|
|
|
35,833
|
|
|
|
|
|
|
|
436
|
|
|
|
|
|
|
|
36,269
|
|
Receivables, other
|
|
|
|
|
|
|
(2,767
|
)
|
|
|
(3,655
|
)
|
|
|
273
|
|
|
|
5,651
|
|
|
|
(498
|
)
|
Prepaid and other assets
|
|
|
|
|
|
|
(231
|
)
|
|
|
(2
|
)
|
|
|
7
|
|
|
|
|
|
|
|
(226
|
)
|
Settlement liabilities
|
|
|
|
|
|
|
(35,423
|
)
|
|
|
|
|
|
|
(410
|
)
|
|
|
|
|
|
|
(35,833
|
)
|
Accounts payable
|
|
|
|
|
|
|
2,362
|
|
|
|
(55
|
)
|
|
|
(48
|
)
|
|
|
|
|
|
|
2,259
|
|
Accrued expenses
|
|
|
|
|
|
|
2,714
|
|
|
|
258
|
|
|
|
186
|
|
|
|
(5,651
|
)
|
|
|
(2,493
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities
|
|
|
|
|
|
|
16,247
|
|
|
|
(141
|
)
|
|
|
493
|
|
|
|
|
|
|
|
16,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, equipment and
leasehold improvements
|
|
$
|
|
|
|
$
|
(2,208
|
)
|
|
$
|
(19
|
)
|
|
$
|
(25
|
)
|
|
$
|
|
|
|
$
|
(2,252
|
)
|
Purchase of other intangibles
|
|
|
|
|
|
|
(172
|
)
|
|
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
|
(243
|
)
|
Investments in subsidiaries
|
|
|
(163
|
)
|
|
|
(360
|
)
|
|
|
|
|
|
|
|
|
|
|
523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
(163
|
)
|
|
|
(2,740
|
)
|
|
|
(90
|
)
|
|
|
(25
|
)
|
|
|
523
|
|
|
|
(2,495
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments under credit facility
|
|
|
|
|
|
|
(2,310
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,310
|
)
|
Debt issuance costs
|
|
|
|
|
|
|
(105
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(105
|
)
|
Proceeds from equity offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163
|
|
Minority capital contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
240
|
|
|
|
240
|
|
Capital contributions
|
|
|
|
|
|
|
163
|
|
|
|
|
|
|
|
600
|
|
|
|
(763
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
financing activities
|
|
|
163
|
|
|
|
(2,252
|
)
|
|
|
|
|
|
|
600
|
|
|
|
(523
|
)
|
|
|
(2,012
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS
|
|
|
|
|
|
|
39
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS
|
|
|
|
|
|
|
11,294
|
|
|
|
(231
|
)
|
|
|
1,061
|
|
|
|
|
|
|
|
12,124
|
|
CASH AND CASH
EQUIVALENTS Beginning of period
|
|
|
|
|
|
|
32,237
|
|
|
|
276
|
|
|
|
2,610
|
|
|
|
|
|
|
|
35,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH
EQUIVALENTS End of period
|
|
$
|
|
|
|
$
|
43,531
|
|
|
$
|
45
|
|
|
$
|
3,671
|
|
|
$
|
|
|
|
$
|
47,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Eliminations include intercompany investments and management fees |
19
GLOBAL
CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
GLOBAL
CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATING SCHEDULE STATEMENT OF CASH
FLOWS
THREE
MONTHS ENDED MARCH 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations*
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
|
(Unaudited)
|
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
7,340
|
|
|
$
|
7,340
|
|
|
$
|
1,316
|
|
|
$
|
53
|
|
|
$
|
(8,709
|
)
|
|
$
|
7,340
|
|
Adjustments to reconcile net income
to cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of financing costs
|
|
|
|
|
|
|
494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
494
|
|
Amortization of intangibles
|
|
|
|
|
|
|
1,324
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
1,364
|
|
Depreciation
|
|
|
|
|
|
|
1,949
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
1,952
|
|
Deferred income taxes
|
|
|
|
|
|
|
3,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,625
|
|
Equity loss in subsidiaries
|
|
|
(7,340
|
)
|
|
|
(1,369
|
)
|
|
|
|
|
|
|
|
|
|
|
8,709
|
|
|
|
|
|
Minority ownership loss
|
|
|
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50
|
)
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement receivables
|
|
|
|
|
|
|
6,947
|
|
|
|
|
|
|
|
237
|
|
|
|
|
|
|
|
7,184
|
|
Receivables, other
|
|
|
|
|
|
|
(476
|
)
|
|
|
(2,001
|
)
|
|
|
3
|
|
|
|
3,436
|
|
|
|
962
|
|
Prepaid and other assets
|
|
|
|
|
|
|
(2,101
|
)
|
|
|
(4
|
)
|
|
|
7
|
|
|
|
|
|
|
|
(2,098
|
)
|
Settlement liabilities
|
|
|
|
|
|
|
(5,938
|
)
|
|
|
|
|
|
|
(362
|
)
|
|
|
|
|
|
|
(6,300
|
)
|
Accounts payable
|
|
|
|
|
|
|
(1,816
|
)
|
|
|
389
|
|
|
|
(86
|
)
|
|
|
|
|
|
|
(1,513
|
)
|
Accrued expenses
|
|
|
|
|
|
|
(1,964
|
)
|
|
|
31
|
|
|
|
182
|
|
|
|
(3,436
|
)
|
|
|
(5,187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities
|
|
|
|
|
|
|
7,965
|
|
|
|
(229
|
)
|
|
|
37
|
|
|
|
|
|
|
|
7,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, equipment and
leasehold improvements
|
|
|
|
|
|
|
(2,016
|
)
|
|
|
(4
|
)
|
|
|
(48
|
)
|
|
|
|
|
|
|
(2,068
|
)
|
Purchase of other intangibles
|
|
|
|
|
|
|
(90
|
)
|
|
|
(183
|
)
|
|
|
(80
|
)
|
|
|
|
|
|
|
(353
|
)
|
Investments in subsidiaries
|
|
|
(700
|
)
|
|
|
(700
|
)
|
|
|
|
|
|
|
|
|
|
|
1,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
(700
|
)
|
|
|
(2,806
|
)
|
|
|
(187
|
)
|
|
|
(128
|
)
|
|
|
1,400
|
|
|
|
(2,421
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments under credit facility
|
|
$
|
|
|
|
$
|
(31,500
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(31,500
|
)
|
Minority capital contributions
|
|
|
|
|
|
|
280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
280
|
|
Capital contributions
|
|
|
|
|
|
|
700
|
|
|
|
|
|
|
|
700
|
|
|
|
(1,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
financing activities
|
|
|
|
|
|
|
(30,520
|
)
|
|
|
|
|
|
|
700
|
|
|
|
(1,400
|
)
|
|
|
(31,220
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS
|
|
|
(700
|
)
|
|
|
(25,316
|
)
|
|
|
(416
|
)
|
|
|
575
|
|
|
|
|
|
|
|
(25,857
|
)
|
CASH AND CASH
EQUIVALENTS Beginning of period
|
|
|
700
|
|
|
|
45,037
|
|
|
|
662
|
|
|
|
3,178
|
|
|
|
|
|
|
|
49,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH
EQUIVALENTS End of period
|
|
$
|
|
|
|
$
|
19,721
|
|
|
$
|
246
|
|
|
$
|
3,753
|
|
|
$
|
|
|
|
$
|
23,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Eliminations include intercompany investments and management fees |
20
|
|
ITEM 2.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
This Quarterly Report on
Form 10-Q
contains forward-looking statements within the safe
harbor provisions of the Private Securities Litigation
Reform Act of 1995. All statements included in this Quarterly
Report, other than statements that are purely historical, are
forward-looking statements. Words such as
anticipate, contemplate,
expect, intend, plan,
believe, seek, estimate,
will, will continue to be, or the
negative of foregoing and similar expressions regarding beliefs,
plans expectations or intentions regarding the future also
identify forward-looking statements. Forward-looking statements
in this Quarterly Report include, without limitation: in
Part I, Item 1, (1) our belief that the
disclosures contained within the unaudited condensed
consolidated financial statements are adequate to make the
information presented not misleading; (2) our belief that
the transactions performed in Canada are financial services
transactions specifically exempted by the ETA and therefore not
taxable for purposes of the Canadian Goods and Services Tax;
(3) our opinion that all of the issues raised by the card
associations will be resolved in the ordinary course of business
and that related changes to the bankcard transaction processing
will not result in a material adverse impact on us; (4) our
opinion that the final resolution of pending or threatened
litigation in the aggregate is not likely to have a material
adverse effect on our business, cash flow, results of operations
or financial position; (5) our expectation to commence
providing a private label credit card in 2006, our belief that
there are a number of commercial opportunities available to us
through the issuance of such a card and our belief that it could
be a source of significant business for us; (6) our belief
that the Company was in compliance with all of its debt
covenants as of March 31, 2006; (7) our expectations
relevant to the vesting of our stock options and our restricted
stock and the recognition of those costs on a straight-line
basis over a weighted average period of 2.7 years and
3.8 years, respectively; in Part I, Item 2,
(8) statements regarding our recognition and enjoyment of a
net tax asset in connection with our conversation to a taxable
corporate entity and the pro forma effect of such asset;
(9) our expectation that commissions, interchange and
warranty expenses will continue to increase, and that, in the
balance of 2006, cost of revenues (excluding depreciation and
amortization) will increase at a rate faster than revenues;
(10) our estimate that the effective tax rate for 2006 will
be 36.7% for the purposes of determining the provision for
income taxes; (11) our expectation that capital
expenditures for 2006 will exceed $8 million and our
intention or ability to obtain a waiver of this capital
expenditure restriction or to refinance our senior secured debt;
(12) our intention to use our revolving credit facility to
provide ongoing working capital and for other general corporate
purposes; (13) our belief that borrowings under our secured
credit facilities, together with our anticipated operating cash
flows, will be adequate to meet our anticipated future
requirements for working capital, capital expenditures and
scheduled interest payments on the Notes and under our senior
secured credit facility for the next twelve months and for the
foreseeable future; (14) our plan, if necessary, to seek
additional financing through bank borrowings or public or
private debt or equity financings; (15) our belief that
replacement costs of equipment, furniture and leasehold
improvements will not materially affect our operations; in
Part I, Item 3, (16) our expectation that we will
continue to pay interest on borrowings under our senior secured
credit facilities based on LIBOR of various maturities; and in
Part II, Item 1, (17) our ability to obtain an
injunction against future infringement of the patent and
recovery of damages as a result of past infringement of the
patent, (18) our intention to enter into new and developing
domestic and international markets, and (19) our
expectation that a substantial portion of our future growth will
result from the general expansion of the gaming industry.
Our expectations, beliefs, objectives, anticipations, intentions
and strategies regarding the future, including, without
limitation, those concerning expected operating results,
revenues and earnings are not guarantees of future performance
and are subject to risks and uncertainties that could cause
actual results to differ materially from results contemplated by
the forward-looking statements including, but not limited to:
(1) unanticipated changes in standards and reporting
requirements; (2) our inability to predict the CRAs
ultimate disposition of liability for the disputed rebate claim;
(3) our failure to comply with card association rules and
regulations, our inability to predict the severity of issues
raised by card associations, our limited ability to make changes
to the bankcard transaction processing, and our reliance on
third parties for bankcard transaction processing; (4) the
uncertainty of the outcome of any pending or threatened
litigation; (5) the termination of our relationship with
either CIT Bank or Fiserv Solutions, Inc., the failure to find
and capitalize on commercial opportunities available through a
private label credit card, or our failure to comply with all
regulations applicable to the provision of credit cards;
(6) our inability to satisfy conditions precedent of our
debt covenants; (7) our inability to control the cessation
of employment of recipients of our stock options and our
restricted stock; (8) unanticipated changes to applicable
tax rates or laws or changes in our tax position, including
changes in the amortization of our tax asset as a result of an
audit or otherwise; (9) our inability to control
interchange rates and our ability to offer gaming establishments
incentives
21
other than increased commission rates and unanticipated cost
savings or larger than anticipated revenue increases due to
market expansion, competitive success or otherwise;
(10) unanticipated changes to applicable tax rates or laws
or changes in our tax position, including changes in the
amortization of our deferred tax asset; (11) our inability
to obtain a waiver of capital expenditure restrictions or to
refinance our senior secured debt; (12) our inability to
use our revolving credit facility to provide ongoing working
capital and for other general corporate purposes;
(13) unanticipated needs for working capital, capital
expenditures, our inability to satisfy conditions precedent to
our ability to borrow additional funds under our senior secured
credit facilities or our failure to accurately estimate our
operating cash flows as a result of competitive pressures or
otherwise; (14) our inability to obtain additional
financings through bank borrowings or debt or equity financing
at all or on terms that are favorable to us;
(15) unanticipated loss of or damage to our equipment or
the need to replace our equipment as a result of unanticipated
obsolescence, regulatory changes or otherwise;
(16) unanticipated interest as a result of interest based
upon rates other than LIBOR of various maturities; (17) our
inability to protect our intellectual property rights;
(18) our inability to successfully enter new markets as a
result of regulatory, competitive or other reasons; and
(19) the failure of the gaming industry to expand at the
rate we expect.
In addition to the risks and uncertainties identified above, our
business, financial condition, or operating results are also
subject to a number of additional risks and uncertainties,
including, but not limited to: our inability to maintain our
current customers on favorable terms; our inability to enter new
markets; competitive forces or unexpectedly high increases in
interchange and processing costs that preclude us from passing
such costs on to our customers through increased surcharges or
reduced commissions; an unexpectedly high level of chargeback
losses or check warranty expenses; our inability to compete
effectively in the cash access products and related services
market; unexpected increases in commissions paid to gaming
establishments; our inability to anticipate the political and
regulatory developments affecting growth in the gaming industry;
our failure to comply with financial services regulations;
unanticipated changes in consumer privacy laws; our inability to
protect our intellectual property rights; our inability to keep
pace with the changing technology, evolving industry standards
and the introduction of new products and services; the
occurrence of errors, failures or disruptions in and
unauthorized access to our products and services and the
networks and third-party services upon which our products and
services are based; our inability to generate sufficient cash
flow to service our indebtedness; unexpected changes in our
leverage ratio, upon which the percentage of our excess cash
flow that is required to be used to make additional payments of
principal on our bank debt is based; a renegotiation or
refinancing of our debt obligations that alters our debt service
burden for a particular period; the loss of one of our financial
services providers; actions taken by our technology partners or
the failure of our technology partners to service our needs,
which results in our decision to sever our relationships with
them; our failure to renew our contracts with our top customers;
our inability to manage our growth; our loss of key personnel;
the loss of our sponsorship into the card associations; changes
in the rules and regulations of the card associations that
require the discontinuation of or material changes to our
products or services; failure to comply with Section 404 of
the Sarbanes-Oxley Act of 2002; losses due to natural disasters;
and our inability to identify or form joint ventures with
partners that result in products that are commercially
successful.
We assume no obligation to update any forward-looking
statements. Readers are cautioned not to place undue reliance on
forward-looking statements, which speak only as of the date of
this Quarterly Report on
Form 10-Q.
Readers should also review the cautionary statements and
discussion of the risks of our business set forth elsewhere
herein under the heading Risk Factors under
Part II, Item 1A and our other filings with the
Securities and Exchange Commission (SEC), including
our Annual Report on
Form 10-K
(No. 001-32622)
filed on March 23, 2006 and our Current Reports on Form
8-K.
Overview
We are a provider of cash access products and related services
to the gaming industry in the United States, the United Kingdom,
Canada, the Caribbean, Switzerland and Belgium. Our products and
services provide gaming establishment patrons access to cash
through a variety of methods, including ATM cash withdrawals,
credit card cash advances,
point-of-sale
debit cash advances, check cashing and money transfers. In
addition, we also provide products and services that improve
credit decision-making, automate cashier operations and enhance
patron marketing activities for gaming establishments.
We began our operations as a Delaware limited liability company
owned by M&C International and entities affiliated with Bank
of America Corporation and First Data Corporation in July 1998.
In September 2000, the Bank of America Corporation affiliate
sold its entire ownership interest in us to M&C
International and First Data
22
Corporation. In March 2004, Global Cash Access, Inc. issued
$235 million in aggregate principal amount of
83/4% senior
subordinated notes due 2012 (the Notes) and borrowed
$260 million under senior secured credit facilities. Global
Cash Access Holdings, Inc. was formed to hold all of the
outstanding capital stock of Global Cash Access, Inc. and to
guarantee the obligations under the senior secured credit
facilities. A substantial portion of the proceeds of these
senior subordinated notes and senior secured credit facilities
were used to redeem all of First Data Corporations
interest in us and a portion of M&C Internationals
interest in us through a recapitalization (the
Recapitalization), in which Bank of America
Corporation reacquired an ownership interest in us. In May 2004,
we completed a private equity restructuring (the Private
Equity Restructuring) in which M&C International sold
a portion of its ownership interest in us to a number of private
equity investors, including entities affiliated with Summit
Partners, and we converted from a limited liability company to a
Delaware corporation. In September 2005, Holdings completed an
initial public offering of common stock. In connection with that
offering, the various equity securities of Holdings that had
been outstanding prior to the offering were converted into
common stock. In addition, Holdings became a guarantor, on a
subordinated basis, of GCAs senior subordinated notes.
In connection with our conversion from a limited liability
company to a corporation for United States federal income tax
purposes, we recognized deferred tax assets and liabilities from
the expected tax consequences of differences between the book
basis and tax basis of our assets and liabilities at the date of
conversion into a taxable entity. Prior to our conversion to a
corporation, we operated our business as a limited liability
company that was treated as a pass through entity for United
States federal income tax purposes, making our owners
responsible for taxes on their respective share of our earnings.
Three
months ended March 31, 2006 compared to three months ended
March 31, 2005
The following table sets forth the unaudited condensed
consolidated results of operations for the three months ended
(amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31, 2006
|
|
|
March 31, 2005
|
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash advance
|
|
$
|
67,055
|
|
|
|
51.6
|
%
|
|
$
|
56,778
|
|
|
|
51.8
|
%
|
ATM
|
|
|
53,160
|
|
|
|
40.9
|
%
|
|
|
43,773
|
|
|
|
39.9
|
%
|
Check services
|
|
|
7,244
|
|
|
|
5.6
|
%
|
|
|
6,309
|
|
|
|
5.8
|
%
|
Central Credit and other revenues
|
|
|
2,376
|
|
|
|
1.8
|
%
|
|
|
2,806
|
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
129,835
|
|
|
|
100.0
|
%
|
|
|
109,666
|
|
|
|
100.0
|
%
|
Cost of revenues (exclusive of
depreciation and amortization)
|
|
|
(91,351
|
)
|
|
|
70.4
|
%
|
|
|
(72,465
|
)
|
|
|
66.1
|
%
|
Operating expenses
|
|
|
(15,290
|
)
|
|
|
11.8
|
%
|
|
|
(12,013
|
)
|
|
|
11.0
|
%
|
Amortization
|
|
|
(1,502
|
)
|
|
|
1.2
|
%
|
|
|
(1,364
|
)
|
|
|
1.2
|
%
|
Depreciation
|
|
|
(1,065
|
)
|
|
|
0.8
|
%
|
|
|
(1,952
|
)
|
|
|
1.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
|
20,627
|
|
|
|
15.9
|
%
|
|
|
21,872
|
|
|
|
19.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST INCOME (EXPENSE), NET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
555
|
|
|
|
0.4
|
%
|
|
|
451
|
|
|
|
0.4
|
%
|
Interest expense
|
|
|
(10,248
|
)
|
|
|
7.9
|
%
|
|
|
(10,932
|
)
|
|
|
10.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income (expense),
net
|
|
|
(9,693
|
)
|
|
|
7.5
|
%
|
|
|
(10,481
|
)
|
|
|
9.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAX PROVISION
AND MINORITY OWNERSHIP LOSS
|
|
|
10,934
|
|
|
|
8.4
|
%
|
|
|
11,391
|
|
|
|
10.4
|
%
|
INCOME TAX PROVISION
|
|
|
(4,007
|
)
|
|
|
3.1
|
%
|
|
|
(4,083
|
)
|
|
|
3.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE MINORITY OWNERSHIP
LOSS
|
|
|
6,927
|
|
|
|
5.3
|
%
|
|
|
7,308
|
|
|
|
6.7
|
%
|
MINORITY OWNERSHIP LOSS, net of tax
|
|
|
36
|
|
|
|
0.0
|
%
|
|
|
32
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
6,963
|
|
|
|
5.4
|
%
|
|
$
|
7,340
|
|
|
|
6.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31, 2006
|
|
|
March 31, 2005
|
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
OTHER DATA:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate dollar amount processed
(in billions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash advance
|
|
$
|
1.4
|
|
|
|
|
|
|
$
|
1.1
|
|
|
|
|
|
ATM
|
|
|
2.9
|
|
|
|
|
|
|
|
2.4
|
|
|
|
|
|
Check warranty
|
|
$
|
0.3
|
|
|
|
|
|
|
$
|
0.3
|
|
|
|
|
|
Number of transactions completed
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash advance
|
|
|
2.5
|
|
|
|
|
|
|
|
2.3
|
|
|
|
|
|
ATM
|
|
|
16.7
|
|
|
|
|
|
|
|
14.3
|
|
|
|
|
|
Check warranty
|
|
|
1.3
|
|
|
|
|
|
|
|
1.1
|
|
|
|
|
|
Total
Revenues
Total revenues for the quarter ended March 31, 2006 were
$129.8 million, an increase of $20.2 million, or
18.4%, as compared to the quarter ended March 31, 2005.
The increase in revenues from the first quarter of 2005 to the
first quarter of 2006 was primarily due to the reasons described
below.
Cash Advance. Cash advance revenue for the
quarter ended March 31, 2006 was $67.1 million, an
increase of $10.3 million, or 18.1%, as compared to the
quarter ended March 31, 2005. The total amount of cash
disbursed increased 19.3% from $1.1 billion to
$1.4 billion and the number of transactions completed
increased 9.3% from 2.3 million to 2.5 million.
Revenue per cash advance transaction increased 8.1% from $24.63
to $26.63.
ATM. ATM revenue for the quarter ended
March 31, 2006 was $53.2 million, an increase of
$9.4 million, or 21.4%, as compared to the quarter ended
March 31, 2005. The increase was primarily attributable to
a 16.2% increase in the number of transactions from
14.3 million to 16.7 million. Revenue per ATM
transaction increased 4.6% from $3.05 to $3.19. There was a
24.3% increase in the total amount of cash disbursed from
$2.4 billion to $2.9 billion.
Check Services. Check services revenue for the
quarter ended March 31, 2006 was $7.2 million, an
increase of $0.9 million, or 14.8%, as compared to the
quarter ended March 31, 2005. The face amount of checks
warranted increased 25.5% from $257.3 million to
$322.8 million. The number of checks warranted increased
12.9% from 1.1 million to 1.3 million, while the
average face amount per check warranted increased from $230.46
to $256.08. Check warranty revenue as a percent of face amount
warranted was 2.12% in the 2006 quarter as compared to 2.33% for
the quarter ended March 31, 2005, and revenue per check
warranty transaction increased 0.9% from $5.37 to $5.42.
Central Credit and Other. Central Credit and
other revenues for the quarter ended March 31, 2006, were
$2.4 million, a decrease of $0.4 million, or 15.3%,
from $2.8 million in the quarter ended March 31, 2005.
Costs and
Expenses
Cost of Revenues (Exclusive of Depreciation and
Amortization). Cost of revenues (exclusive of
depreciation and amortization) increased 26.1% from
$72.5 million to $91.4 million. The largest component
of cost of revenues (exclusive of depreciation and amortization)
is commissions, and commissions increased 26.2% in the 2006
quarter as contracts were signed or renewed at higher commission
rates than experienced in the 2005 quarter. The second-largest
component of cost of revenues (exclusive of depreciation and
amortization) is interchange; interchange expenses increased
26.8%. The third major component of cost of revenues (exclusive
of depreciation and amortization), warranty expenses, increased
24.5%. We expect that commissions, interchange and warranty
expenses will continue to increase, and we expect that for the
remaining quarters of 2006 cost of revenues (exclusive of
depreciation and amortization) will increase at a rate faster
than revenues.
Operating Expenses. Operating expenses for the
quarter ended March 31, 2006 were $15.3 million, an
increase of $3.3 million, 27.3%, as compared to the quarter
ended March 31, 2005. Operating expenses in the 2006
24
quarter included $2.0 million in non-cash compensation
expenses related to our implementation of
SFAS No. 123(R), Share-Based Payment, for
equity awards issued to our employees. The increase in operating
expenses in the 2006 quarter is primarily attributable to
increased payroll and related benefits and taxes from the
addition of several employees as the infrastructure of the
organization has been expanded to meet the new demands of
operating as a stand alone public entity. Additionally, expenses
associated with the operation of the Companys ATMs
increased with the increase in ATM volume.
Depreciation and Amortization. Depreciation
expense for the quarter ended March 31, 2006 was
$1.1 million, a decrease of $0.9 million, or 45.4%
compared to the 2005 quarter. The decrease in depreciation
expense is principally related to the equipment acquired in the
2001 InnoVentry acquisition becoming fully depreciated in the
third quarter of 2005. Amortization expense, which relates
principally to computer software, customer contracts and our
3-in-1
patent, increased from $1.4 million to $1.5 million,
as a result of the acquisition of our
3-in-1
patent in the third quarter of FY 2005.
Primarily as a result of the factors described above, operating
income for the quarter ended March 31, 2006 was
$20.6 million, a decrease of $1.2 million, or 5.7%, as
compared to the quarter ended March 31, 2005.
Interest Income (Expense), Net. Interest
income was $555 thousand in the first quarter of 2006, an
increase of 23.1% from the first quarter of 2005, due primarily
to higher average cash balances in the first quarter of 2006.
Interest expense for the quarter ended March 31, 2006, was
$10.2 million, a decrease of $0.7 million, or 6.3%, as
compared to the quarter ended March 31, 2005. Higher
interest rates on our senior secured credit facilities were
offset by lower average borrowings in the first quarter of 2006.
Interest expense on borrowings (including amortization of
deferred financing costs) was $6.7 million in the 2006
quarter as compared to $8.9 million in the 2005 quarter.
The cash usage fee for cash used in our ATMs is included in
interest expense. ATM cash usage fees were $3.5 million in
the first quarter of 2006 as compared to $2.0 million in
the same quarter of 2005. This increase was a result of an
increase in the average amount of outstanding ATM cash from
$272.3 million in the first quarter of 2005 to
$290.4 million in the first quarter of 2006 and an increase
in the effective interest rate for the quarter from 3.0% to 4.9%
for the same periods respectively.
Primarily as a result of the foregoing, income before income tax
provision and minority ownership loss was $10.9 million for
the quarter ended March 31, 2006, a decrease of
$0.5 million, or 4.0%, as compared to the 2005 quarter.
Income Tax. The provision for income taxes in
the first quarter of 2006 represents our estimate of the
effective tax rate for the year of 36.7%. This rate is higher
than the statutory tax rate in effect for 2005 due to the
non-deductible income tax treatment of the non-cash compensation
expense related to incentive stock options granted to employees.
Due to the amortization of our deferred tax assets, actual cash
taxes paid on pretax income generated in the first quarter of
2006 will be substantially lower than the provision.
Primarily as a result of the foregoing, income before minority
ownership loss was $6.9 million for the quarter ended
March 31, 2006, a decrease of $0.4 million, or 5.2%,
as compared to the 2005 quarter.
Minority Ownership Loss, Net of Tax. Minority
ownership loss, net of tax attributable to QuikPlay for the
quarter ended March 31, 2006 was $36 thousand as compared
to $32 thousand in the comparable period of 2005.
Primarily as a result of the foregoing, net income was
$7.0 million for the quarter ended March 31, 2006, a
decrease of $0.4 million as compared to the 2005 quarter.
25
LIQUIDITY
AND CAPITAL RESOURCES
Cash
Flows
The following table summarizes our cash flows for the three
months ended March 31, 2006 and 2005, respectively (amounts
in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Net cash provided by operating
activities
|
|
$
|
16,599
|
|
|
$
|
7,773
|
|
Net cash used in investing
activities
|
|
|
(2,495
|
)
|
|
|
(2,421
|
)
|
Net cash used in financing
activities
|
|
|
(2,012
|
)
|
|
|
(31,220
|
)
|
Net effect of exchange rate
changes on cash and cash equivalents
|
|
|
32
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
and cash equivalents
|
|
|
12,124
|
|
|
|
(25,857
|
)
|
Cash and cash equivalents,
beginning of period
|
|
|
35,123
|
|
|
|
49,577
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of
period
|
|
$
|
47,247
|
|
|
$
|
23,720
|
|
|
|
|
|
|
|
|
|
|
Our principal source of liquidity is cash flows from operating
activities, which were $16.6 million and $7.8 million,
for the three months ended March 31, 2006 and 2005,
respectively. Our cash from operating activities was greater
than in the first three months of 2006 when compared to 2005.
Changes in accrued expense and accounts payable account for
$6.5 million of the change, while $3.5 million is the
result of non-cash expense items included in the three months of
2006 that were not present in the comparable period of 2005.
Net cash used in investing activities totaled $2.5 million
and $2.4 million for the three months ended March 31,
2006 and 2005, respectively. Included in net cash used in
investing activities were funds spent on purchased software and
software development in the amounts of $0.2 million and
$0.4 million, funds spent on the procurement of cash access
equipment, computer and other hardware in the amounts of
$2.3 million and $2.1 million for the three months
ended March 31, 2006 and 2005, respectively. We have met
our capital requirements to date through cash flows from
operating activities. We currently expect that capital
expenditures in 2006 will exceed $8 million, which is the
annual limit allowed under our senior secured credit facilities.
We will seek to obtain a waiver of this restriction or to
refinance our senior secured debt, but if we are unsuccessful in
doing so, we could be in breach of this provision at the end of
2006.
Net cash used in financing activities was $2.0 million and
$31.2 million for the three months ended March 31,
2006 and 2005, respectively. In the three months ended
March 31, 2006 and 2005, we repaid $2.3 million and
$31.5 million of principal on our credit facilities. In the
three months ended March 31, 2006, the net cash used also
includes payments for debt issuance costs of $0.1 million.
Cash provided from investing activities includes
$0.2 million in capital contributions for QuikPlay from our
minority investor in the three months ended March 31, 2006
and 2005, respectively. Additionally, in the 2006 quarter we
obtained proceeds from the exercising of employee options under
our equity compensation programs totaling $0.2 million.
Indebtedness
On March 10, 2004 we entered into senior secured credit
facilities arranged by Banc of America Securities LLC, with Bank
of America, N.A. as administrative agent, in an aggregate
principal amount of $280.0 million, consisting of a
five-year revolving credit facility of $20.0 million and a
six-year term loan facility of $260.0 million. The
revolving credit facility may be used to provide ongoing working
capital and for other general corporate purposes. Amounts
available under this revolving credit were reduced by
$3.1 million of letters of credit outstanding at
March 31, 2006. The terms of our senior secured credit
facilities require that a significant portion of our excess cash
flow be devoted to reducing amounts outstanding under these
facilities. Under the terms of our senior secured credit
facilities we are required to maintain financial covenants
related to our leverage ratio, senior leverage ratio and fixed
charge cover ratio. Additionally, we have a covenant related to
our allowable capital expenditures. We believe we were in
compliance with all of our debt covenants that were applicable
as of March 31, 2006.
26
On April 14, 2005, we entered into an Amended and Restated
Credit Agreement pursuant to which some of the terms in our
original senior secured credit facility was modified. These
modifications provided for the reduction in the Applicable
Margin if our credit rating was upgraded and our leverage ratio
was below certain thresholds. In April 2006, the Applicable
Margin over the London Interbank Offered Rate
(LIBOR) on which our interest expense is based, was
reduced from 225 basis points to 175 basis points
On March 10, 2004, we completed a private placement
offering of the Notes. All of GCAs existing and future
domestic wholly owned subsidiaries are guarantors of the Notes
on a senior subordinated basis. In addition, effective upon the
closing of the Companys initial public offering of common
stock, Holdings guaranteed, on a subordinated basis, GCAs
obligations under the Notes.
Interest on the Notes accrues based upon a
360-day year
comprised of twelve
30-day
months and is payable semiannually on
March 15th and
September 15th.
On October 31, 2005, $82.25 million or 35% of these
Notes were redeemed at a price of 108.75% of face, out of the
net proceeds from our equity offering. On or after
March 15, 2008, the Company may redeem all or a portion of
the Notes at redemption prices of 104.375% on or after
March 15, 2008, 102.188% on or after March 15, 2009 or
100.000% on or after March 15, 2010.
Other
Liquidity Needs and Resources
Bank of America, N.A. supplies us with currency needed for
normal operating requirements of our ATMs pursuant to the
Amendment of the Treasury Services Agreement. Under the terms of
this agreement, we pay a monthly cash usage fee based upon the
product of the average daily dollars outstanding in all ATMs
multiplied by average LIBOR for one-month United States dollar
deposits for each day that rate is published in that month plus
a margin of 25 basis points. We are therefore exposed to
interest rate risk to the extent that the applicable LIBOR
increases. As of March 31, 2006, the rate in effect,
inclusive of the 25 basis points margin, was 5.1%, and the
currency supplied by Bank of America, N.A. pursuant to this
agreement was $324.0 million.
We need supplies of cash to support our foreign operations that
involve the dispensing of currency. For some foreign
jurisdictions, applicable law and cross-border treaties allow us
to transfer funds between our domestic and foreign operations
efficiently. The income from the United Kingdom branch operation
is taxed as earned in the United States and United Kingdom. This
double taxation is removed through tax treaty and the United
States foreign tax credit. As a result, transfer of funds
between our domestic and United Kingdom operations can be
handled efficiently with no restrictive repatriation
considerations.
For other foreign jurisdictions, we must rely on the supply of
cash generated by our operations in those foreign jurisdictions,
and the costs of repatriation are prohibitive. For example,
CashCall Systems Inc., the subsidiary through which we operate
in Canada, generates a supply of cash that is sufficient to
support its operations, and all cash generated through such
operations is retained by CashCall Systems Inc. As we expand our
operations into new foreign jurisdictions, we must rely on
treaty-favored cross-border transfers of funds, the supply of
cash generated by our operations in those foreign jurisdictions
or alternate sources of working capital.
Pursuant to the terms of our agreement with International Game
Technology (IGT), we are obligated to invest up to
our pro rata share of $10.0 million in capital to QuikPlay.
Our obligation to invest additional capital in QuikPlay is
conditioned upon capital calls, which are in our sole
discretion. As of March 31, 2006, we had invested a total
of $4.0 million in QuikPlay.
We believe that borrowings available under our senior secured
credit facilities, together with our anticipated operating cash
flows, will be adequate to meet our anticipated future
requirements for working capital, capital expenditures and
scheduled interest payments on the Notes and under our senior
secured credit facilities for the next 12 months and for
the foreseeable future. Although no additional financing is
currently contemplated, we may seek, if necessary or otherwise
advisable and to the extent permitted under the indenture
governing the Notes and the terms of the senior secured credit
facilities, additional financing through bank borrowings or
public or private debt or equity financings. We cannot assure
you that additional financing, if needed, will be available to
us, or that, if available, the financing will be on terms
favorable to us. The terms of any additional debt or equity
financing that we may obtain in the future could impose
additional limitations on our operations
and/or
management structure. We also cannot assure you that the
estimates of our liquidity needs are accurate or that new
business developments or other unforeseen events will not occur,
resulting in the need to raise additional funds.
27
Off-Balance
Sheet Arrangements
We obtain currency to meet the normal operating requirements of
our domestic ATMs and automated cashier machines
(ACM) pursuant to the Amendment of the Treasury
Services Agreement with Bank of America, N.A. Under this
agreement, all currency supplied by Bank of America, N.A.
remains the sole property of Bank of America, N.A. at all times
until it is dispensed, at which time Bank of America, N.A.
obtains an interest in the corresponding settlement receivable.
Because it is never an asset of ours, supplied cash is not
reflected on our balance sheet. Because Bank of America, N.A.
obtains an interest in our settlement receivables, there is no
liability corresponding to the supplied cash reflected on our
balance sheet. The fees that we pay to Bank of America, N.A. for
cash usage pursuant to the Amendment of the Treasury Services
Agreement are reflected as interest expense in our financial
statements. Foreign gaming establishments supply the currency
needs for the ATMs located on their premises.
As of March 31, 2006, we have $3.0 million in standby
letters of credit outstanding as a collateral security for First
Data Corporation (FDC) related to a Sponsorship
Indemnification Agreement whereby First Data agreed to continue
their guarantee of performance for us to Bank of America for our
sponsorship as a Bank Identification Number (BIN)
and Interbank Card Association (ICA) licensee under
the applicable Visa and MasterCard rules. GCA has agreed to
indemnify FDC and its affiliates against any and all losses and
expenses arising from its indemnification obligations pursuant
to that agreement. Additionally, we had $0.1 million in
standby letters of credit issued and outstanding as collateral
on surety bonds for certain licenses held related to our Nevada
check cashing licenses.
Effects
of Inflation
Our monetary assets, consisting primarily of cash and
receivables, are not significantly affected by inflation. Our
non-monetary assets, consisting primarily of our deferred tax
asset, goodwill and other intangible assets, are not affected by
inflation. We believe that replacement costs of equipment,
furniture and leasehold improvements will not materially affect
our operations. However, the rate of inflation affects our
operating expenses, such as those for salaries and benefits,
armored carrier expenses, telecommunications expenses and
equipment repair and maintenance services, which may not be
readily recoverable in the financial terms under which we
provide our cash access products and services to gaming
establishments and their patrons.
Critical
Accounting Policies
The preparation of our financial statements in conformity with
U.S. GAAP requires us to make estimates and assumptions
that affect our reported amounts of assets and liabilities,
revenues and expenses, and related disclosures of contingent
assets and liabilities in our consolidated financial statements.
The SEC has defined a companys critical accounting
policies as the ones that are most important to the portrayal of
the financial condition and results of operations, and which
require management to make its most difficult and subjective
judgments, often as a result of the need to make estimates about
matters that are inherently uncertain. There were no newly
identified significant accounting estimates in the three months
ended March 31, 2006, nor were there any material changes
to the critical accounting policies and estimates discussed in
the Companys audited consolidated financial statements for
the year ended December 31, 2005, included in the
Companys Annual Report on
Form 10-K
(No. 001-32622)
filed on March 23, 2006.
|
|
ITEM 3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
In the normal course of business, we are exposed to foreign
currency exchange risk. We operate and conduct business in
foreign countries and, as a result, are exposed to movements in
foreign currency exchange rates. Our exposure to foreign
currency exchange risk related to our foreign operations is not
material to our results of operations, cash flows or financial
position. At present, we do not hedge this risk, but continue to
evaluate such foreign currency translation risk exposure. At
present, we do not hold any derivative securities of any kind.
Bank of America, N.A. supplies us with currency needed for
normal operating requirements of our domestic ATMs and ACMs
pursuant to the Amendment of the Treasury Services Agreement.
Under the terms of this agreement, we pay a monthly cash usage
fee based upon the product of the average daily dollars
outstanding in all ATMs and ACMs multiplied by the average LIBOR
for one-month United States dollar deposits for each day that
rate is published in that month plus a margin of 25 basis
points. We are therefore exposed to interest rate risk to the
28
extent that the applicable LIBOR rate increases. As of
March 31, 2006, the rate in effect, inclusive of the
25 basis points margin, was 5.1% and the currency supplied
by Bank of America, N.A. pursuant to this agreement was
$324.0 million. Based upon the average outstanding amount
of currency to be supplied by Bank of America, N.A. pursuant to
this agreement during the first three months of 2006, which was
$290.4 million, each 1% change in the applicable LIBOR rate
would have a $2.9 million impact on income before taxes and
minority ownership loss over a
12-month
period. Foreign gaming establishments supply the currency needs
for the ATMs located on their premises.
Our senior secured credit facilities bear interest at rates that
can vary over time. We have the option of having interest on the
outstanding amounts under these credit facilities paid based on
a base rate (equivalent to the prime rate) or based on the
Eurodollar rate (equivalent to LIBOR). We have historically
elected to pay interest based on the one month United States
dollar LIBOR, and we expect to continue to pay interest based on
LIBOR of various maturities. Our interest expense on these
credit facilities is the applicable LIBOR plus a margin of
175 basis points for the term loan portion and LIBOR plus
175 basis points for the revolving credit portion. At
March 31, 2006, we had $0 drawn under the revolving credit
portion and we had $166.4 million outstanding under the
term loan portion at an interest rate, including the margin, of
7.1%. Based upon the outstanding balance on the term loan of
$166.4 million on March 31, 2006, each 1% increase in
the applicable LIBOR would add an additional $1.7 million
of interest expense over a
12-month
period.
|
|
ITEM 4.
|
CONTROLS
AND PROCEDURES
|
As of the end of the period covered by this report, we carried
out an evaluation, under the supervision and with the
participation of our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. While our disclosure
controls and procedures are designed to provide reasonable
assurance of achieving their objectives, the design of any
system of controls is based in part upon assumptions about the
likelihood of future events, and there can be no assurance that
any design will succeed in achieving its stated goals under all
potential future conditions regardless of how remote. However,
based on the evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures (as defined
by the SEC in
Rule 13a-15(e)
and
Rule 15d-15(e)
under the Securities Exchange Act of 1934, as amended), our
Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective at
the reasonable assurance level.
There has been no change in our internal control over financial
reporting that occurred during our most recent fiscal quarter
that has materially affected or is reasonably likely to
materially affect our internal control over financial reporting.
PART II.
OTHER INFORMATION
|
|
ITEM 1.
|
LEGAL
PROCEEDINGS
|
On October 22, 2004, we and USA Payments, as co-plaintiffs,
filed a complaint in United States District Court, District of
Nevada against U.S. Bancorp d/b/a U.S. Bank, Certegy
Inc., Certegy Check Services, Inc., Game Financial Corporation
and GameCash, Inc. alleging the infringement of the patented
3-in-1
rollover functionality. In this litigation, we are seeking
an injunction against future infringement of the patent and
recovery of damages as a result of past infringement of the
patent. In its response, the defendants have denied infringement
and have asserted patent invalidity. In addition, the defendants
have asserted various antitrust and unfair competition
counterclaims.
We are threatened with or named as a defendant in various
lawsuits in the ordinary course of business, such as personal
injury claims and employment-related claims. It is not possible
to determine the ultimate disposition of these matters; however,
we are of the opinion that the final resolution of any such
threatened or pending litigation, individually or in the
aggregate, is not likely to have a material adverse effect on
our business, cash flow, results of operations or financial
position.
The risk factors set forth below captioned We are
subject to extensive rules and regulations of card
associations . . ., Because of our
dependence on a few providers . . .,
Certain providers upon whom we are dependent are under
common control with M&C
International . . ., We may not be
successful in our entry into
29
the consumer credit business through the issuance of a
private label credit card., We operate our business
in regions subject to natural
disasters . . ., We will be required
to comply with Section 404 of the Sarbanes-Oxley Act of
2002 . . ., Growth of the gaming
industry in any market is subject to political and regulatory
developments . . . and
Many of the financial services that we provide are
subject to extensive rules and
regulations . . . have been
modified from prior versions of these risk factors set forth in
our Annual Report on
Form 10-K
for the period ended December 31, 2005.
Risks
related to our business
If we
are unable to maintain our current customers on terms that are
favorable to us, our business, financial condition and operating
results may suffer a material adverse effect.
We enter into contracts with our gaming establishment customers
to provide our cash access products and related services. Most
of our contracts have a term ranging from three to five years in
duration and provide that we are the only provider of cash
access products to these establishments during the term of the
contract. However, some of our contracts are terminable upon
30 days advance notice and some of our contracts either
become nonexclusive or terminable by our gaming establishment
customers in the event that we fail to satisfy specific
covenants set forth in the contracts, such as covenants related
to our ongoing product development. We are typically required to
renegotiate the terms of our customer contracts upon their
expiration, and in some circumstances we may be forced to modify
the terms of our contracts before they expire. When we have
successfully renewed these contracts, these negotiations have in
the past resulted in, and in the future may result in, financial
and other terms that are less favorable to us than the terms of
the expired contracts. In particular, we are often required to
pay a higher commission rate to a gaming establishment than we
previously paid in order to renew the relationship. Assuming
constant transaction volume, increases in commissions or other
incentives paid to gaming establishments would reduce our
operating results. We may not succeed in renewing these
contracts when they expire, which would result in a complete
loss of revenue from that customer, either for an extended
period of time or forever. Our contracts are often global, in
that they cover all of the gaming establishments of a particular
operator wherever they are located around the world. So, the
loss of a single contract often results in the loss of multiple
gaming establishments. If we are required to pay higher
commission rates or agree to other less favorable terms to
retain our customers or we are not able to renew our
relationships with our customers upon the expiration of our
contracts, our business, financial condition and operating
results would be harmed.
Because
of significant concentration among our top customers, the loss
of a top customer could have a material adverse effect on our
revenues and profitability.
In 2005, our five largest customers, Harrahs
Entertainment, Inc., Boyd Gaming Corporation, Mandalay Resort
Group, Station Casinos, Inc. and Mohegan Tribal Gaming,
accounted for approximately 40.4% of our revenues. In June 2005,
Harrahs Entertainment, Inc. acquired Caesars
Entertainment, Inc. The combined entity would have accounted for
17.9% of our revenues for the year ended December 31, 2005
and 17.7% in the three months ended March 31, 2006. The
loss of, or a substantial decrease in revenues from, any one of
our top customers could have a material adverse effect on our
business and operating results.
Consolidation among operators of gaming establishments may also
result in the loss of a top customer to the extent that
customers of ours are acquired by our competitors
customers.
Competition
in the market for cash access services is intense which could
result in higher commissions or loss of customers to our
competitors.
The market for cash access products and related services is
intensely competitive, and we expect competition to increase and
intensify in the future. We compete with other providers of cash
access products and services such as Game Financial Corporation,
a subsidiary of Fidelity National Information Services Inc.
operating as GameCash; Global Payment Systems operating as
Cash & Win; and Cash Systems, Inc. We compete with
financial institutions such as U.S. Bancorp and other
regional and local banks that operate ATM machines on the
premises of gaming establishments. We face potential competition
from gaming establishments that may choose to operate cash
access systems on their own behalf rather than outsource to us.
We may in the future also face competition from traditional
transaction processors, such as First Data Corporation, that may
choose to enter the gaming patron cash services market. In
connection with our redemption of First Data Corporations
interest in us, First Data Corporation agreed
30
not to compete with us prior to March 10, 2007. This
agreement not to compete, however, is limited to the
United States and Canada and is subject to a number of
exceptions. Given its familiarity with our specific industry and
business and operations as a result of being our majority owner
from inception until March 10, 2004, First Data Corporation
could be a significant competitive threat upon the expiration of
this covenant not to compete. In addition, we may in the future
face potential competition from new entrants into the market for
cash access products and related services. Some of our
competitors and potential competitors have significant
advantages over us, including greater name recognition, longer
operating histories, pre-existing relationships with current or
potential customers, significantly greater financial, marketing
and other resources and more ready access to capital which allow
them to respond more quickly to new or changing opportunities.
In addition, some providers of cash access products and services
to gaming establishments have established cooperative
relationships with financial institutions in order to expand
their service offerings.
Other providers of cash access products and services to gaming
establishments have in the past increased, and may in the future
continue to increase, the commissions or other incentives they
pay to gaming establishments in order to win those gaming
establishments as customers and to gain market share. To the
extent that competitive pressures force us to increase
commissions or other incentives to establish or maintain
relationships with gaming establishments, our business and
operating results could be adversely affected.
Under our agreements with NRT Technology Corporation, or NRT,
and Western Money Systems, they are generally prohibited from
providing their cash handling services on any device that
provides cash access services of other providers. Upon the
expiration or termination of our agreements with NRT and Western
Money Systems, we may face competition from other providers of
cash access services to the extent that NRT or Western Money
Systems establishes cooperative relationships with other cash
access service providers.
If we
are unable to protect our intellectual property adequately, we
may lose a valuable competitive advantage or be forced to incur
costly litigation to protect our rights.
Our success depends on developing and protecting our
intellectual property. We have entered into license agreements
with other parties for intellectual property that is critical to
our business. We rely on the terms of these license agreements,
as well as copyright, patent, trademark and trade secret laws to
protect our intellectual property. We also rely on other
confidentiality and contractual agreements and arrangements with
our employees, affiliates, business partners and customers to
establish and protect our intellectual property and similar
proprietary rights. We hold two issued patents and have six
patent applications pending. These patent applications may not
become issued patents. If they do not become issued patents, our
competitors would not be prevented from using these inventions.
We have also entered into license agreements with other parties
for the exclusive use of their technology and intellectual
property rights in the gaming industry, such as our license to
use portions of the software infrastructure upon which our
systems operate from Infonox on the Web. We rely on these other
parties to maintain and protect this technology and the related
intellectual property rights. If our licensors fail to protect
their intellectual property rights in material that we license
and we are unable to protect such intellectual property rights,
the value of our licenses may diminish significantly and our
business could be significantly harmed. It is possible that
third parties may copy or otherwise obtain and use our
information and proprietary technology without our authorization
or otherwise infringe on our intellectual property rights or
intellectual property rights that we exclusively license. In
addition, we may not be able to deter current and former
employees, consultants, and other parties from breaching
confidentiality agreements with us and misappropriating
proprietary information from us or other parties. If we are
unable to adequately protect our intellectual property or our
exclusively licensed rights, or if we are unable to continue to
obtain or maintain licenses for proprietary technology from
other parties, including in particular Infonox on the Web, it
could have a material adverse effect on the value of our
intellectual property, our reputation, our business and our
operating results.
We may have to rely on litigation to enforce our intellectual
property rights and contractual rights. For example, we are
pursuing a patent infringement action against U.S. Bancorp,
Fidelity National Information Services Inc. and Game Financial
Corporation to discontinue what we believe to be their
infringement of the rights arising under our patent to the
3-in-1
rollover functionality. By pursuing this litigation, we
are exposed to the risk that the defendants will attempt to
invalidate the patent or otherwise limit its scope. If
litigation that we initiate is unsuccessful, including the
litigation described above, we may not be able to protect the
value of our intellectual property and our business could be
adversely affected. In addition, in the litigation we do
initiate, the defendants
31
may assert various counterclaims that may subject us to
liability. In the litigation referred to above, the defendants
have asserted various antitrust and unfair competition claims.
In addition to losing the ability to protect our intellectual
property, we may also be liable for damages. We may also face
difficulty enforcing our rights in the QuikCash trademark
because of the timing and sequence of some of the assignment and
renewal actions relating to the trademark.
In addition, we may face claims of infringement that could
interfere with our ability to use technology or other
intellectual property rights that are material to our business
operations. In the event a claim of infringement against us is
successful, we may be required to pay royalties to use
technology or other intellectual property rights that we had
been using or we may be required to enter into a license
agreement and pay license fees, or we may be required to stop
using the technology or other intellectual property rights that
we had been using. We may be unable to obtain necessary licenses
from third parties at a reasonable cost or within a reasonable
time. Any litigation of this type, whether successful or
unsuccessful, could result in substantial costs to us and
diversions of our resources.
We are
subject to extensive rules and regulations of card associations,
including MasterCard International, Visa International and Visa
U.S.A., that are always subject to change, which may harm our
business.
In 2005 and the three months ended March 31, 2006, a
substantial portion of our revenues were derived from
transactions subject to the extensive rules and regulations of
the leading card associations, Visa International and Visa
U.S.A., or VISA, and MasterCard International, or MasterCard.
From time to time, we receive correspondence from these card
associations regarding our compliance with their rules and
regulations. In the ordinary course of our business, we engage
in discussions with the card associations, and the bank that
sponsors us into the card associations, regarding our compliance
with their rules and regulations. The rules and regulations do
not expressly address some of the contexts and settings in which
we process cash access transactions, or do so in a manner
subject to varying interpretations. For example, neither of the
major card associations has determined that our ability to
process credit card cash advance transactions using biometric
technology at an unmanned machine and without cashier
involvement through our ACM complies with its regulations. One
association has allowed us to conduct these transactions as long
as we assume chargeback liability for any transaction in which
we do not obtain a contemporaneous cardholder signature. To
date, we have not seen increased chargebacks on these
transactions. However, an increase in the level of chargebacks
could have a material adverse effect on our business or results
of operations. The other association has allowed us to conduct a
limited pilot test. As a result, we are currently not able to
use this feature of our ACMs to process credit card cash
advances or POS debit card transactions involving that card
association at all of our locations. Therefore, patrons still
must complete these transactions at the cashier, which is
inconvenient to patrons and prevents gaming establishments from
realizing potential cashier labor cost savings. As another
example, in 2003, one of the major card associations informed
our sponsoring bank that authorization requests originating from
our systems needed to be encoded to identify our transactions as
gambling transactions, even though our services do not directly
involve any gambling activity. This resulted in a large number
of card issuing banks declining all transactions initiated
through our services. We resolved this issue by encoding the
authorization requests with an alternative non-gambling
indicator that the card association agreed was applicable. As
another example, we must continue to comply with the Payment
Card Industry (PCI) Data Security Standard. These examples only
illustrate some of the ways in which the card association rules
and regulations have affected us in the past or may affect us in
the future; there are many other ways in which these rules and
regulations may adversely affect us beyond these examples.
The card associations rules and regulations are always
subject to change, and the associations modify their rules and
regulations from time to time. Our inability to anticipate
changes in rules, regulations or the interpretation or
application thereof may result in substantial disruption to our
business. In the event that the card associations or our
sponsoring bank determine that the manner in which we process
certain types of card transactions is not in compliance with
existing rules and regulations, or if the card associations
adopt new rules or regulations that prohibit or restrict the
manner in which we process certain types of card transactions,
we may be forced to pay a fine, modify the manner in which we
operate our business or stop processing certain types of cash
access transactions altogether, any of which could have a
material negative impact on our business and operating results.
In both our credit card and POS debit card cash advance
businesses, patrons are generally issued a negotiable instrument
which is surrendered to the casino in exchange for cash. These
are classified by the card associations as
quasi-cash transactions, and these transactions are
identified to the associations as such by the use of a specific
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Merchant Category Code (MCC) which the associations
and the issuing banks use as one of the factors they consider in
determining whether to authorize such transactions. We have
introduced EDITH, a new product that dispenses a bar-coded slot
ticket based on a POS debit authorization. It has not yet been
determined whether the associations will deem the slot ticket a
negotiable instrument or not. If they do not, we may be required
to route such transactions using a different MCC code, and the
use of a different MCC code may result in lower approval rates
than we experience with quasi-cash transactions. If approval
rates for EDITH transactions are lower than approval rates for
quasi-cash transactions, casino patrons may be dissuaded from
using EDITH, resulting in the failure of our EDITH product to
gain commercial acceptance.
We also process transactions involving the use of the Discover
Card and the American Express card. The rules and regulations of
the proprietary credit card networks that service these cards
present risks to us that are similar to those posed by the rules
and regulations of VISA and MasterCard.
We have entered the consumer credit business through the
provision of a private label credit card through our
wholly-owned subsidiary, Arriva Card, Inc. Initially, our credit
card will not be part of the VISA or MasterCard card
associations. If, in the future, our card becomes part of the
VISA or MasterCard card associations, we will become subject to
additional rules and regulations of these card associations.
Changes
in interchange rates and other fees may affect our cost of
revenues (exclusive of depreciation and amortization) and net
income.
We pay credit card associations fees for services they provide
in settling transactions routed through their networks, called
interchange fees. In addition, we pay fees to participate in
various ATM or POS debit card networks as well as processing
fees to process our transactions. The amounts of these
interchange fees are fixed by the card associations and networks
in their sole discretion, and are subject to increase at any
time. VISA and MasterCard both increased applicable interchange
fees in April 2005. Also, in 2004, VISAs Interlink
network, through which we process a substantial portion of our
POS debit card transactions, materially increased the
interchange rates for those transactions. Since that date, the
proportion of our POS debit card transactions that are routed on
the Interlink network has increased, resulting in a decrease in
profitability of our POS debit card business. Many of our
contracts enable us to pass through increases in interchange or
processing fees to our customers, but competitive pressures
might prevent us from passing all or some of these fees through
to our customers in the future. To the extent that we are unable
to pass through to our customers all or any portion of any
increase in interchange or processing fees, our cost of revenues
(exclusive of depreciation and amortization) would increase and
our net income would decrease, assuming no change in transaction
volumes. Any such decrease in net income could have a material
adverse effect on our financial condition and operating results.
We receive fees from the issuers of ATM cards that are used in
our ATM machines, called reverse interchange fees. The amounts
of these reverse interchange fees are fixed by electronic funds
transfer networks, and are subject to decrease in their
discretion at any time. Unlike credit card association
interchange fees, our contracts do not enable us to pass through
to our customers the amount of any decrease in reverse
interchange fees. To the extent that reverse interchange fees
are reduced, our net income would decrease, assuming no change
in transaction volumes, which may result in a material adverse
effect on our operating results.
Our
substantial indebtedness could materially adversely affect our
operations and financial results and prevent us from obtaining
additional financing, if necessary.
We have a significant amount of indebtedness. As of
March 31, 2006, we had total indebtedness of
$319.1 million in principal amount (of which
$152.8 million consisted of senior subordinated notes and
$166.3 million consisted of senior secured debt). Our
substantial indebtedness could have important consequences. For
example, it:
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makes it more difficult for us to satisfy our obligations with
respect to either our senior secured debt or our senior
subordinated notes, which, if we fail to do, could result in the
acceleration of all of our debt;
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increases our vulnerability to general adverse economic and
industry conditions;
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requires us to dedicate a substantial portion (in the case of
our senior secured debt, up to 75% of our excess cash flow,
depending upon our total leverage ratio) of our cash flow from
operations to payments on our
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indebtedness, which would reduce the availability of our cash
flow to fund working capital, capital expenditures, expansion
efforts and other general corporate purposes;
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limits our flexibility in planning for, or reacting to, changes
in our business and the industry in which we operate;
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restricts our ability to pay dividends or repurchase our common
stock;
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places us at a competitive disadvantage compared to our
competitors that have less debt;
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prohibits us from acquiring businesses or technologies that
would benefit our business;
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restricts our ability to engage in transactions with affiliates
or create liens or guarantees; and
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limits, along with the financial and other restrictive covenants
in our other indebtedness, among other things, our ability to
borrow additional funds.
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In addition, our senior secured credit facilities and the
indenture for our senior subordinated notes contain financial
and other restrictive covenants that limit our ability to engage
in activities that we may believe to be in our long-term best
interests. These restrictions include, among other things,
limits on our ability to make investments, pay dividends, incur
debt, sell assets, or merge with or acquire another entity. Our
failure to comply with those covenants could result in an event
of default which, if not cured or waived, could result in the
acceleration of all of our debt. Certain matters may arise that
require us to get waivers or modifications of these covenants.
For example, we expect that our capital expenditures in 2006
will exceed the amounts allowed under the credit facilities due
to capital expenditures we expect to incur in connection with
commencing operations under one of our contracts. As another
example, as described more fully below, we may seek to obtain
our own money transmitter licenses. These licenses may require
us to provide letters of credit or surety bonds in excess of the
amounts currently allowed under the credit facilities. We may
address these risks by seeking modifications or waivers of our
existing agreements, by refinancing those agreements, or both.
If we are unable to get these matters waived, modified or
refinanced, an event of default could occur which, if not cured
or waived, could result in the acceleration of all of our debt.
Our senior secured debt currently bears interest at a rate that
is based on the London Interbank Offering Rate, or LIBOR, and is
adjusted periodically to reflect changes in LIBOR. We are
therefore exposed the risk of increased interest expense in the
event of any increase in LIBOR. The substantial amount of our
senior secured debt magnifies this risk.
To
service our indebtedness we will require a significant amount of
cash, and our ability to generate cash flow depends on many
factors beyond our control.
Our ability to generate cash flow from operations depends on
general economic, financial, competitive, legislative,
regulatory and other factors that are beyond our control. Due to
these factors, it is possible that our business will not
generate sufficient cash flow from operations to enable us to
pay our indebtedness as it matures and to fund our other
liquidity needs. This would cause us to have to borrow money to
meet these needs and future borrowing may not be available to us
at all or in an amount sufficient to satisfy these needs. In
such events, we will need to refinance all or a portion of our
indebtedness on or before maturity. We may not be able to
refinance any of our indebtedness on commercially reasonable
terms or at all. We could have to adopt one or more
alternatives, such as reducing or delaying planned expenses and
capital expenditures, selling assets, restructuring debt or
obtaining additional equity or debt financing or joint venture
partners. We may not be able to effect any of these financing
strategies on satisfactory terms, if at all. Our failure to
generate sufficient cash flow to satisfy our debt obligations or
to refinance our obligations on commercially reasonable terms
would have a material adverse effect on our business and our
ability to satisfy our obligations with respect to our
indebtedness.
The terms of our senior secured debt require us to dedicate a
substantial portion of our cash flow from operations to payments
on our indebtedness, which will reduce the availability of our
cash flow to fund working capital, capital expenditures,
expansion efforts and other general corporate purposes.
34
Because
of our dependence on a few providers, or in some cases one
provider, for some of the financial services we offer to
patrons, the loss of a provider could have a material adverse
effect on our business or our financial
performance.
We depend on a few providers, or in some cases one provider, for
some of the financial services that we offer to patrons.
Money order instruments. We currently rely on
Integrated Payment Systems, Inc. and Integrated Payment Systems
Canada Inc. to issue the negotiable instruments that are used to
complete credit card cash advance and POS debit card
transactions. Most states require a money transmitter license in
order to issue the negotiable instruments that are used to
complete credit card cash advance and POS debit card
transactions. We do not hold any money transmitter licenses, but
currently issue negotiable instruments as an agent of Integrated
Payment Systems, Inc. and Integrated Payment Systems Canada
Inc., each of whom holds money transmitter licenses. Our current
contract with Integrated Payment Systems, Inc. and Integrated
Payment Systems Canada Inc. expires on December 31, 2006.
We are considering obtaining our own money transmitter licenses.
Many of the regulatory authorities that issue money transmitter
licenses would require the posting of letters of credit or
surety bonds to guaranty our obligations with respect to the
negotiable instruments we would issue to gaming establishments
to consummate credit card cash advance and POS debit card
transactions. To post these letters of credit or surety bonds,
we may need to obtain certain amendments or waivers of the terms
of our senior secured credit facilities and we may need to
partially secure our obligations under our senior subordinated
notes. We may not be able to obtain our own money transmitter
licenses. If we are unable to obtain such licenses prior to the
expiration of our contracts with Integrated Payment Systems,
Inc. and Integrated Payment Systems Canada Inc., we may be
unable to complete credit card cash advance and POS debit card
transactions, which would have a material adverse effect on our
business and financial performance.
Check warranty services. We rely on TRS
Recovery Services, Inc. (formerly known as TeleCheck Recovery
Services, Inc.), or TeleCheck, to provide many of the check
warranty services that our gaming establishment customers use
when cashing patron checks. Unless extended pursuant to its
terms, our contract with TeleCheck expires on March 31,
2007 and we are currently negotiating the terms of a new
contract with TeleCheck. Unless we and TeleCheck mutually agree
to a new contract, we will need to make alternative arrangements
for check warranty services. We may not be able to make such
alternative arrangements on terms that are as favorable to us as
the terms of our contract with TeleCheck, or on any terms at
all. In addition, our Central Credit check warranty service, as
currently deployed, uses risk analytics provided by third-party
providers.
Authorizations and Settlement. We rely on USA
Payments and USA Payment Systems, each of which is affiliated
with M&C International, to obtain authorizations for credit
card cash advances, POS debit card transactions, ATM cash
withdrawal transactions and to settle some of these transactions.
Card association sponsorship. We rely on Bank
of America Merchant Services, which is affiliated with Bank of
America Corporation, for sponsorship into the Visa U.S.A. and
MasterCard card associations for domestic transactions at no
cost to us. We also rely on a foreign bank in each foreign
jurisdiction in which we operate to process transactions
conducted in these jurisdictions through the Visa International
and MasterCard card associations.
ATM cash supply. We rely on Bank of America,
N.A., which is affiliated with Bank of America Corporation, to
supply cash for substantially all of our ATMs.
Software development and system support. We
generally rely on Infonox on the Web, which is controlled by
family members of our director Karim Maskatiya, for software
development and system support. In addition, we rely on NRT for
software development and system support related to
3-in-1
Enabled QuickJack Plus devices.
Product Development. We rely on our joint
venture partner and strategic partners for some of our product
development. For example, we are developing cashless gaming
products through QuikPlay, LLC, or QuikPlay, our joint venture
with International Game Technology, or IGT. With our strategic
partners NRT and Western Money Systems, we have jointly
developed and are marketing self-service slot ticket and player
point redemption kiosks that incorporate our cash access
services. These activities have risks resulting from unproven
combinations of disparate products and services, reduced
flexibility in making design changes in response to market
changes, reduced control over product completion schedules and
the risk of disputes with our joint venture partners and
strategic partners. In addition, if our cashless gaming products
are unsuccessful, we could lose our entire investment in
QuikPlay.
Money transfers. We rely on Western Union
Financial Services, Inc. to facilitate money transfers.
35
Our contracts with these providers are for varying terms and
provide early termination rights in the event of our breach of
or the occurrence of an event of default under these contracts.
Replacing any of these or other products and services we obtain
from third parties could be materially disruptive to our
operations. We may not be able to enter into contracts or
arrangements with alternate providers on terms and conditions as
beneficial to us as the contracts or arrangements with our
current providers, or at all. A change in our business
relationships with any of these third-party providers or the
loss of their services or failed execution on their part could
adversely affect our business, financial condition and results
of operation.
Certain
providers upon whom we are dependent are under common control
with M&C International, the loss of which could have a
material adverse effect on our business.
We depend on services provided by USA Payments and USA Payment
Systems, each of which is affiliated with M&C International,
to provide many of the financial services that we offer to
patrons. The interests of M&C International or its
principals may not coincide with the interests of the holders of
our common stock and such principals may take action that
benefits themselves or these entities to our detriment. For
example, M&C Internationals principals could cause any
of these entities to take actions that impair the ability of
these entities to provide us with the license or services they
provide today or that reduce the importance of us to them in the
future. M&C Internationals principals could dispose of
their interests in these entities at any time and the successor
owner or owners of such interests may not cause such entities to
treat us with the same importance as they treat us today. The
loss of the license or any loss of the services of these
entities could adversely impact our business. During 2005, we
incurred costs and expenses from USA Payments and USA Payment
Systems of an aggregate of $4.0 million. We also depend on
services provided by Infonox on the Web, which is controlled by
family members of our director Karim Maskatiya. These familial
relationships may provide Mr. Maskatiya with influence over
Infonox on the Web, presenting the same risks with respect to
Infonox on the Web as those described above with respect to USA
Payments and USA Payment Systems.
Our
business depends on our ability to introduce new, commercially
viable products and services in a timely manner.
Our ability to maintain and grow our business will depend upon
our ability to introduce successful new products and services in
a timely manner. Our product development efforts are based upon
a number of complex assumptions, including assumptions relating
to gaming patron habits, changes in the popularity and
prevalence of certain types of payment methods, anticipated
transaction volumes, the costs and time required to bring new
products and services to market, and the willingness and ability
of both patrons and gaming establishment personnel to use new
products and services and bear the economic costs of doing so.
Our new products and services may not achieve market acceptance
if any of our assumptions are wrong, or for other reasons.
Our ability to introduce new products and services may also
require regulatory approvals, which may significantly increase
the costs associated with developing a new product or service
and the time required to introduce a new product or service into
the marketplace. In order to obtain these regulatory approvals
we may need to modify our products and services which would
increase our costs of development and may make our products or
services less likely to achieve market acceptance.
For example, the commercial success of our ticket-out debit
device, or TODD, cashless gaming product, and our electronic
debit interactive terminal housing, or EDITH, depends upon the
continued viability of the cashless gaming market segment. A
curtailment in the prevalence of cashless gaming opportunities
as a result of legislative action, responsible gaming pressures
or other factors beyond our control would threaten the
commercial success of our cashless gaming products and services.
TODD required extensive laboratory testing and certification and
to date has only been approved for use in one casino, and EDITH
has not yet been approved for use in any location.
Our ability to grow our business through the introduction of new
products and services depends in part on our joint development
activities with third parties over whom we have little or no
control. We have engaged in joint development projects with
third parties in the past and we expect to continue doing so in
the future. Joint development can magnify several risks for us,
including the loss of control over development of aspects of the
jointly developed products and disputes with our joint venture
partners.
36
We may
not be successful in our entry into the consumer credit business
through the issuance of a private label credit
card.
Through our wholly-owned subsidiary, Arriva Card, Inc., and
together with a licensed banking institution, we will enter the
consumer credit business through the issuance of a private label
credit card. We have entered into an agreement with a licensed
banking institution whereby it issues the card, extends the
credit to the cardholder, and maintains a revolving open end
credit account for the cardholder. Arriva Card, Inc. is
obligated to purchase the receivables from the licensed banking
institution as they arise. This means that we will bear the
credit risk of the cardholders non-payment. We believe
that there are a number of commercial opportunities available to
us through the issuance of such a card, and we believe that the
private label credit card business could be a source of
significant revenue and earnings. We expect the licensed banking
institution to begin issuing these cards during the quarter
ending June 30, 2006. The provision of a private label
credit card is a different business from the processing of
credit card transactions. In our current credit card cash
advance business, we assume no consumer credit risk other than
chargeback risk, which we are exposed to in only an indirect
way. Under the terms of our agreement with the licensed banking
institution, we will effectively bear the credit risk of
providing credit to the consumer. We will bear the risk of
making payment, net of interchange fees, to merchants for all
transactions using the card within a very short time of the
transaction, and we will generally be able to recover those
funds from the consumer no sooner than at the end of the current
monthly statement cycle. We may not be able to collect those
funds from consumers. To the extent that we are unable to
recover those funds we will record a loss, and if the loss is
significant it could have a material adverse effect on our
results of operations and financial condition.
The issuance of credit cards involves assessing an
applicants creditworthiness to determine his or her
ability and inclination to repay any funds borrowed using the
card. We will effectively bear the risk of this assessment for
each of our private label cards issued by the licensed banking
institution. We have no experience in making such credit
decisions. Although we will seek to hire employees with consumer
credit underwriting experience, we may not be able to attract or
retain qualified candidates. Even if we are successful in
attracting such employees, we may not make credit underwriting
decisions that will result in tolerable credit losses. The rate
of defaults in consumer credit is influenced by many factors,
most of which are beyond our ability to control and some of
which are beyond our ability to forecast. Changes in economic
measures, including but not limited to unemployment rates,
interest rates, exchange rates, consumer confidence, and
inflation may affect cardholders ability and willingness
to repay amounts borrowed using the card. The fact that a
consumer is or has been a creditworthy borrower in the past does
not guarantee that he or she will continue to be so in the
future.
By providing a private label credit card to consumers, we will
become subject to a variety of regulations that have not
affected us in the past. While we have initially contracted with
a licensed banking institution for purposes of card issuance and
receivables acceptance, such relationship may be discontinued at
any time. If that were to happen, we would be required to become
licensed in those jurisdictions in which we wanted to issue
cards. We may not receive such licenses and, even if we do, we
may be required to provide letters of credit or surety bonds to
support our obligations in those markets and those letters of
credit and surety bonds may reduce our overall borrowing
capacity. By providing a private label credit card to consumers,
we will also become subject to a variety of state and federal
laws governing collection practices, and such collection
regulations may impede or even prevent our ability to collect
amounts owed to us. These regulations include, but are not
limited to, the Federal Truth in Lending Act and
Regulation Z and the Equal Credit Opportunity Act and
Regulation B. In addition, by providing a private label
credit card to consumers, we will become subject to an extensive
array of federal and state statutes and regulations applicable
to consumer lending including, but not limited to, the Fair Debt
Collection Practices Act, the Fair Credit Reporting Act and the
Fair and Accurate Credit Transactions Act.
The credit card business is very complex from an operational
perspective in that it involves the mailing of statements and
the receipt and posting of credits for potentially millions of
cardholders. We have no experience in the management of credit
accounts. The credit card business also involves resolving
inquires from and providing customer service to cardholders.
While we have experience in doing these functions, it is on a
scale much smaller than we would be exposed to in connection
with a full-scale credit card initiative. We will initially
contract with a company that has experience in managing
large-scale credit card operations, but there can be no
assurance that we will be able to sustain such a relationship.
The credit card business may be perceived differently by
investors from the business we currently perform and, even if we
are successful in earning significant profits in the credit card
business, investors may assign a lower valuation multiple to the
credit card operations than to our historical business. This may
result in a decrease in valuation of the overall entity, which
may lead to a decline in the price of our common stock.
37
Our
products and services are complex, depend on a myriad of complex
networks and technologies and may be subject to software or
hardware errors or failures that could lead to an increase in
our costs, reduce our revenues or damage our
reputation.
Our products and services, and the networks and third-party
services upon which our products and services are based, are
complex and may contain undetected errors or may suffer
unexpected failures. We are exposed to the risk of failure of
our proprietary computer systems, many of which are deployed,
operated, monitored and supported by Infonox on the Web, whom we
do not control. We rely on Infonox on the Web to detect and
respond to errors and failures in our proprietary computer
systems. We rely on NRT for software development and system
support of the
3-in-1
Enabled QuickJack Plus devices. We are exposed to the risk of
failure of the computer systems that are owned, operated and
managed by USA Payments Systems, whom we do not control. USA
Payment Systems owns the data centers through which most of our
transactions are processed, and we rely on USA Payment Systems
to maintain the security and integrity of our transaction data,
including backups thereof. We also are exposed to the risk of
failure of card association and electronic funds transfer
networks that are used to process and settle our transactions.
These networks, that are owned and operated by others, are
subject to planned and unplanned outages and may suffer
degradations in performance during peak processing times.
Finally, we are subject to the risk of disruption to or failure
of the telecommunications infrastructure upon which the
interfaces among these systems are based. All of these systems
and networks, upon which we rely to provide our services, are
vulnerable to computer viruses, physical or electronic
break-ins, natural disasters and similar disruptions, which
could lead to interruptions, delays, loss of data, public
release of confidential data or the inability to complete patron
transactions. The occurrence of these errors or failures,
disruptions or unauthorized access could adversely affect our
sales to customers, diminish the use of our cash access products
and services by patrons, cause us to incur significant repair
costs, result in our liability to gaming establishments or their
patrons, divert the attention of our development personnel from
product development efforts, and cause us to lose credibility
with current or prospective customers or patrons.
We may
not successfully enter new markets and therefore not achieve all
of our strategic growth objectives.
We intend to enter new and developing domestic markets. If and
as these markets continue to develop, competition among
providers of cash access products and services will intensify
and we will have to expand our sales and marketing presence in
these markets. In competitive bidding situations, we may not
enjoy the advantage of being the incumbent provider of cash
access products and services to gaming establishments in these
new markets and developers and operators of gaming
establishments in these new markets may have pre-existing
relationships with our competitors. We may also face the
uncertainty of compliance with new or developing regulatory
regimes with which we are not currently familiar and oversight
by regulators that are not familiar with us or our business.
Each of these risks could materially impair our ability to
successfully expand our operations into these new and developing
domestic markets.
We also intend to enter new and developing international
markets, including markets in which we have not previously
operated. Our strategy of entering foreign markets may expose us
to political, economic and regulatory risks not faced by
businesses that operate only in the United States. The legal and
regulatory regimes of foreign markets and their ramifications on
our business are less certain. Our international operations will
be subject to a variety of risks, including different regulatory
requirements, trade barriers, difficulties in staffing and
managing foreign operations, higher rates of fraud, fluctuations
in currency exchange rates, difficulty in enforcing contracts,
political and economic instability and potentially adverse tax
consequences. For example, our proposed entry into Macau SAR is
subject to our receipt of approvals, licenses or waivers by or
from the Macau Monetary Authority. We may not receive such
approvals, licenses or waivers in a timely manner or at all. If
we do not receive such approvals, licenses or waivers we will
not be able to undertake operations in Macau SAR. Similar
difficulties in obtaining approvals, licenses or waivers from
the monetary authorities of other jurisdictions, in addition to
other potential regulatory issues that we have not yet
ascertained, may arise in other international jurisdictions into
which we wish to enter. In these new markets, our operations
will rely on an infrastructure of financial services and
telecommunications facilities that may not be sufficient to
support our business needs, such as the authorization and
settlement services that are required to implement electronic
payment transactions and the telecommunications facilities that
would enable us to reliably connect our networks to our products
at gaming establishments in these new markets. These risks,
among others, could materially adversely affect our business and
operating results. In connection with our expansion into new
international markets, we may forge strategic relationships with
business partners to assist us. The success of our expansion
into these markets therefore may depend in part upon the success
38
of the business partners with whom we forge these strategic
relationships. We have entered into an agreement with an
overseas representative to assist us in the sales and marketing
of our cash access services to gaming establishments in Eastern
Europe and Russia, and we are attempting to form relationships
with foreign banks to assist us in the processing of
transactions originating from these markets. If we do not
successfully form strategic relationships with the right
business partners or if we are not able to overcome cultural
differences or differences in business practices, our ability to
penetrate these new international markets will suffer.
We are also subject to the risk that the domestic or
international markets that we are attempting to enter or expand
into may not develop as quickly as anticipated, or at all. The
development of new gaming markets is subject to political,
social, regulatory and economic forces beyond our control. The
expansion of gaming activities in new markets can be very
controversial and may depend heavily on the support and
sponsorship of local government. Changes in government
leadership, failure to obtain requisite voter support in
referendums, failure of legislators to enact enabling
legislation and limitations on the volume of gaming activity
that is permitted in particular markets may inhibit the
development of new markets. Our estimates of the potential
future transaction volumes in new markets are based on a variety
of assumptions which may prove to be inaccurate. To the extent
that we overestimate the potential of a new market, incorrectly
gauge the timing of the development of a new market, or fail to
anticipate the differences between a new market and our existing
markets, we may fail in our strategy of growing our business by
expanding into new markets. Moreover, if we are unable to meet
the needs of our existing customers as they enter markets that
we do not currently serve, our relationships with these
customers could be harmed.
We may
encounter difficulties managing our growth, which could
adversely affect our operating results.
We will need to effectively manage the expansion of our
operations in order to execute our growth strategy of entering
into new markets, expanding in existing markets and introducing
new products and services. Growth will strain our existing
resources. It is possible that our management, employees,
systems and facilities currently in place may not be adequate to
accommodate future growth. In this situation, we will have to
improve our operational, financial and management controls,
reporting systems and procedures. If we are unable to
effectively manage our growth, our operations, financial results
and liquidity may be adversely affected.
We
depend on key personnel and they would be difficult to
replace.
We depend upon the ability and experience of two key members of
senior management who have substantial experience with our
operations and the gaming patron cash access industry. We are
highly dependent on the involvement of Kirk Sanford, our
President and Chief Executive Officer, and Harry Hagerty, our
Chief Financial Officer. Other than Messrs. Sanford and
Hagerty and Kathryn Lever, our General Counsel, none of our
executive officers have employment agreements with us. The loss
of Mr. Sanford or Mr. Hagerty would have a material
adverse effect on our business.
Our future success depends upon our ability to attract, train
and retain key managers involved in the development and
marketing of our products and services to gaming establishments.
We may need to increase the number of key managers as we further
develop our products and services and as we enter new markets
and expand in existing markets. Our ability to enter into
contracts with gaming establishments depends in large part on
the relationships that our key managers have formed with
management-level personnel of gaming establishments. Competition
for individuals with such relationships is intense, and we may
not be successful in recruiting such personnel. In addition, we
may not be able to retain such individuals as they may leave our
company and go to work for our competitors. Our sales efforts
would be particularly hampered by the defection of personnel
with long-standing relationships with management-level personnel
of gaming establishments. If we are unable to attract or retain
key personnel, our business, financial condition, operating
results and liquidity could be materially adversely affected.
The
loss of our sponsorship into the Visa U.S.A., Visa International
and MasterCard card associations could have a material adverse
effect on our business.
We cannot provide cash access services involving VISA cards and
MasterCard cards in the United States without sponsorship into
the Visa U.S.A. and MasterCard card associations. Bank of
America Merchant Services currently sponsors us into the card
associations at no cost to us. Bank of America Merchant Services
began this sponsorship of us into the card associations in 1998
when it held a significant ownership interest in us. When Bank
of America Merchant Services sold its interest in us in 2000,
Bank of America Merchant Services agreed to continue its
sponsorship of us at no cost to us conditioned upon First Data
Corporations continued indemnification of Bank of America
Merchant Services for any losses it may suffer as a result of
such sponsorship. When we
39
redeemed First Data Corporations ownership interest in us
in 2004, First Data Corporation agreed to continue to indemnify
Bank of America Merchant Services for any losses it may suffer
as a result of sponsoring us into the card associations through
September 2010. First Data Corporation will have the right to
terminate its indemnification obligations prior to September
2010 in the event that we breach indemnification obligations
that we owe to First Data Corporation, in the event that we
incur chargebacks in excess of specified levels, in the event
that we are fined in excess of specified amounts for violating
card associations operating rules, or in the event that we
amend the sponsorship agreement without First Data
Corporations consent.
In the event that First Data Corporation terminates its
indemnification obligations and as a result we lose our
sponsorship by Bank of America Merchant Services into the card
associations, we would need to obtain sponsorship into the card
associations through another member of the card associations
that is capable of supporting our transaction volume. We would
not be able to obtain such alternate sponsorship on terms as
favorable to us as the terms of our current sponsorship by Bank
of America Merchant Services, which is at no cost to us. We may
not be able to obtain alternate sponsorship at all. Our
inability to obtain alternate sponsorship on favorable terms or
at all would have a material adverse effect on our business,
operating results and liquidity.
We cannot provide cash access services involving VISA cards and
MasterCard cards outside of the United States without a
processing agreement with or sponsorship into the Visa
International and MasterCard card associations by a bank in each
foreign jurisdiction in which we conduct cash access
transactions. We are currently a party to processing agreements
or sponsored into these card associations by foreign banks in
each of the foreign jurisdictions in which we conduct cash
access transactions. In the event that any foreign bank that
currently is a party to such processing agreement or sponsors us
into these card associations terminates such processing
agreement or its sponsorship of us, we would need to obtain a
processing agreement or sponsorship into the card associations
through another foreign bank that is capable of supporting our
transaction volume in the relevant jurisdiction. For example, in
early 2005 we were notified that Bank of America is not
authorized to sponsor us in some Caribbean markets. We paid a
$25,000 fine to one of the card associations and entered into an
alternate processing arrangement. We may not be able to obtain
alternate sponsorship or processing arrangements in any region
on terms as favorable to us as the terms of our current
sponsorship by or processing arrangements with foreign banks, or
at all. Our inability to obtain alternate sponsorship or
processing arrangements on favorable terms or at all could have
a material adverse effect on our business and operating results.
An
unexpectedly high level of chargebacks, as the result of fraud
or otherwise, could adversely affect our cash advance
business.
When patrons use our cash access services, we either dispense
cash or produce a negotiable instrument that can be endorsed and
exchanged for cash. If a completed cash access transaction is
subsequently disputed and if we are unsuccessful in establishing
the validity of the transaction, we may not be able to collect
payment for such transaction and such transaction becomes a
chargeback. One of the major credit card associations has
allowed us to complete credit card cash advance and POS debit
card transactions at our ACMs so long as we assume chargeback
liability for any transaction in which we do not obtain a
contemporaneous cardholder signature, which may result in
increased chargeback liability. An increased level of
chargebacks could have a material adverse effect on our business
or results of operation. Moreover, in the event that we incur
chargebacks in excess of specified levels, First Data
Corporation will have the right to terminate its indemnification
obligations to Bank of America Merchant Services, and we could
lose our no-cost sponsorship into the card associations. In
addition, in the event that we incur chargebacks in excess of
specified levels, we could be censured by the card associations
by way of fines or otherwise.
In certain foreign regions in which we operate, new card
security features have been developed as a fraud deterrent. In
the United Kingdom, for example, this
feature known as
chip-and-pin requires
merchant terminals to be capable of obtaining an authorization
through a
chip-and-pin
entry mode in addition to traditional magnetic stripe and keyed
entry modes. Currently, with our regional sponsor in the United
Kingdom, we are in the process of upgrading our
point-of-sale
terminals to accept this new technology. In the interim, we are
exposed to potential additional chargeback risk on identified
fraudulent transactions performed on a
chip-and-pin
enabled card for which we are unable to read the embedded
microchip or accept the patrons personal identification
number.
A
material increase in market interest rates or changing
regulations could adversely affect our ATM
business.
We obtain a supply of cash for our ATMs from Bank of America,
N.A. Pursuant to our contract with Bank of America, N.A., we are
obligated to pay a monthly fee that is based upon the amount of
cash used to supply our
40
ATMs and a market interest rate. Assuming no change in the
amount of cash used to supply our ATMs, an increase in market
interest rates will result in an increase in the monthly fee
that we must pay to obtain this supply of cash, thereby
increasing our ATM operating costs. Any increase in the amount
of cash required to supply our ATMs would magnify the impact of
an increase in market interest rates. An increase in interest
rates may result in a material adverse effect on our financial
condition and operating results. For the year ended
December 31, 2005 and the three months ended March 31,
2006, we paid approximately $10.2 million and
$3.5 million, respectively, in aggregate fees to Bank of
America, N.A. for this supply of cash.
Our ATM services are subject to the applicable state banking
regulations in each jurisdiction in which we operate ATMs. Our
ATM services may also be subject to local regulations relating
to the imposition of daily limits on the amounts that may be
withdrawn from ATM machines, the location of ATM machines and
our ability to surcharge cardholders who use our ATM machines.
These regulations may impose significant burdens on our ability
to operate ATMs profitably in some locations, or at all.
Moreover, because these regulations are subject to change, we
may be forced to modify our ATM operations in a manner
inconsistent with the assumptions upon which we relied in
entering into contracts to provide ATM services at gaming
establishments.
An
unexpected increase in check warranty expenses could adversely
affect our check warranty business.
We currently rely on TeleCheck to provide check warranty
services to many of our customers. When a gaming establishment
obtains an authorization from TeleCheck pursuant to its check
warranty service, TeleCheck warrants payment on the
patrons check. If the patrons check is subsequently
dishonored upon presentment for payment, TeleCheck purchases the
dishonored check from the gaming establishment for its face
amount. Pursuant to the terms of our contract with TeleCheck, we
share a portion of the loss associated with these dishonored
checks. Although this contract limits the percentage of the
dishonored checks to which we are exposed, there is no limit on
the aggregate dollar amount to which we are exposed, which is a
function of the face amount of checks warranted. TeleCheck
manages and mitigates these dishonored checks through the use of
risk analytics and collection efforts, including the additional
fees that it is entitled to collect from check writers of
dishonored checks. During the year ending December 31, 2005
and the three months ended March 31, 2006, our warranty
expenses with respect to TeleChecks check warranty service
were $10.8 million and $2.1 million, respectively. We
have no control over TeleChecks decision to warrant
payment on a particular check and we have limited visibility
into TeleChecks collection activities. As a result, we may
incur an unexpectedly high level of check warranty expenses at
any time, and if we do, we may suffer a material adverse effect
to our business or results of operation. As an alternative to
TeleChecks check warranty service, we have developed our
own Central Credit check warranty service that is based upon our
Central Credit gaming patron credit bureau database, our
proprietary patron transaction database, third-party risk
analytics and actuarial assumptions. If these risk analytics or
actuarial assumptions are ineffective, we may incur an
unexpectedly high level of check warranty expenses which may
have a material adverse effect on our business or operating
results.
We
operate our business in regions subject to natural disasters,
including hurricanes. We may suffer casualty losses as a result
of a natural disaster, and any interruption to our business
resulting from a natural disaster will adversely affect our
revenues and results of operations.
We operate our business primarily through equipment, including
Casino Cash Plus
3-in-1 ATM
machines, ACMs and QuikCash kiosks, which we install on the
premises of gaming establishments and that patrons use to access
cash for gaming. Accordingly, a substantial portion of our
physical assets are located in locations beyond our direct
control. Our business may be adversely affected by any damage to
or loss of equipment that we install at gaming establishments or
the cash contained therein resulting from theft, vandalism,
terrorism, flood, fire or any other natural disaster. Any losses
or damage that we suffer may not be subject to coverage under
our insurance policies.
In addition to these casualty losses, our business is exclusive
to gaming establishments and is dependent on consumer demand for
gaming. In the event of a natural disaster, the operations of
gaming establishments could be negatively impacted or consumer
demand for gaming could decline, or both, and as a result, our
business could be disrupted. For example, we anticipate that our
revenues and results of operations in Louisiana and Mississippi
will be reduced in 2006 and perhaps in subsequent years from
what we would otherwise have expected as a result of Hurricanes
Katrina and Rita. Although we cannot predict the extent of any
such reduction, any interruption to our business resulting from
a natural disaster will adversely affect our revenues and
results of operations.
41
We
will be required to comply with Section 404 of the
Sarbanes-Oxley Act of 2002 and furnish a report on our internal
control over financial reporting as of the end of
2006.
Based on current laws and regulations, we will be required to
comply with Section 404 of the Sarbanes-Oxley Act of 2002
(Section 404) as of the end of 2006.
Section 404 requires us to assess and attest to the
adequacy of our internal control over financial reporting and
requires our independent auditors to opine as to the adequacy of
our assessment and internal control over financial reporting.
Our efforts to comply with Section 404 will result in us
incurring significant expenses in 2006.
Even with those expenditures, we may not receive an unqualified
opinion from our independent auditors. In connection with its
audit of our financial statements for the year ended
December 31, 2005, our independent auditors identified a
number of control deficiencies involving our internal control
over financial reporting for the year ended December 31,
2005. We cannot assure you that we will be able to remedy these
control deficiencies or that we or our independent auditors will
not discover additional control deficiencies or significant
deficiencies or material weaknesses in our internal control over
financial reporting in the future. The existence of a material
weakness in our internal control over financial reporting could
result in errors in our financial statements that could require
us to restate our financial statements, cause us to fail to meet
our reporting obligations and cause investors to lose confidence
in our reported financial information, all of which could lead
to a decline in the trading price of our common stock.
To
execute our growth strategy, we may make acquisitions or
strategic investments, which involve numerous risks that we may
not be able to address without substantial expense, delay or
other operational or financial problems.
In order to obtain new customers in existing markets, expand our
operations into new markets, or grow our business through the
introduction of new products and services, we may consider
acquiring additional businesses, technologies, products and
intellectual property. For example, we may consider acquiring or
forming a bank or other financial services company for the
purpose of, among other things, issuing our own credit cards
and/or using
that banks vault cash to supply cash to our ATMs.
Acquisitions and strategic investments involve various risks,
such as:
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difficulty integrating the technologies, operations and
personnel from the acquired business;
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overestimation of potential synergies or a delay in realizing
those synergies;
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disruption to our ongoing business, including the diversion of
managements attention and of resources from our principal
business;
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inability to obtain the desired financial and strategic benefits
from the acquisition or investment;
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loss of customers of an acquired business;
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assumption of unanticipated liabilities;
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loss of key employees of an acquired business; and
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entering into new markets in which we have limited prior
experience.
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Acquisitions and strategic investments could also result in
substantial cash expenditures, the dilutive issuance of our
equity securities, the incurrence of additional debt and
contingent liabilities, and amortization expenses related to
other intangible assets that could adversely affect our
business, operating results and financial condition.
Acquisitions and strategic investments may also be highly
dependent upon the retention and performance of existing
management and employees of acquired businesses for the
day-to-day
management and future operating results of these businesses.
Risks
related to the industry
Economic
downturns, a decline in the popularity of gaming or changes in
the demographic profile of gaming patrons could reduce the
number of patrons that use our services or the amounts of cash
that they access using our services.
We provide our cash access products and related services
exclusively to gaming establishments for the purpose of enabling
their patrons to access cash. As a result, our business depends
on consumer demand for gaming. Gaming is a discretionary leisure
activity, and participation in discretionary leisure activities
has in the past and may in the future decline during economic
downturns because consumers have less disposable income.
Therefore, during
42
periods of economic contraction, our revenues may decrease while
some of our costs remain fixed, resulting in decreased earnings.
Gaming activity may also decline based on changes in consumer
confidence related to general economic conditions or outlook,
fears of war, future acts of terrorism, or other factors. A
reduction in tourism could also result in a decline in gaming
activity. Finally, a legislature or regulatory authority may
prohibit gaming activities altogether in its jurisdiction. A
decline in gaming activity as a result of these or any other
factors would have a material adverse effect on our business and
operating results.
Changes in consumer preferences could also harm our business.
Gaming competes with other leisure activities as a form of
consumer entertainment and may lose popularity as new leisure
activities arise or as other leisure activities become more
popular. In addition, gaming in traditional gaming
establishments competes with Internet-based gaming for gaming
patrons, and due to regulatory concerns, we have elected not to
participate in the Internet gaming market at this time. The
popularity and acceptance of gaming is also influenced by the
prevailing social mores and changes in social mores could result
in reduced acceptance of gaming as a leisure activity. To the
extent that the popularity of gaming in traditional gaming
establishments declines as a result of either of these factors,
the demand for our cash access services may decline and our
business may be harmed.
Aside from the general popularity of gaming, the demographic
profile of gaming patrons changes over time. The gaming habits
and use of cash access services varies with the demographic
profile of gaming patrons. For example, a local patron may visit
a gaming establishment regularly but limit his or her play to
the amount of cash that he or she brings to the gaming
establishment. In contrast, a vacationing gaming patron that
visits the gaming establishment infrequently may play much
larger amounts and have a greater need to use cash access
services. To the extent that the demographic profile of gaming
patrons in the markets we serve either narrows or migrates
towards patrons who use cash access services less frequently or
for lesser amounts of cash, the demand for our cash access
services may decline and our business may be harmed.
Changes
in consumer willingness to pay a fee to access their funds could
reduce the demand for our cash access products and
services.
Our business depends upon the willingness of patrons to pay a
fee to access their own funds on the premises of a gaming
establishment. In most retail environments, consumers typically
do not pay an additional fee for using non-cash payment methods
such as credit cards, POS debit cards or checks. In order to
access cash in a gaming establishment, however, patrons must pay
service charges to access their funds. Gaming patrons could
bring more cash with them to gaming establishments, or access
cash outside of gaming establishments without paying a fee for
the convenience of not having to leave the gaming establishment.
To the extent that gaming patrons become unwilling to pay these
fees for convenience or lower cost cash access alternatives
become available, the demand for cash access services within
gaming establishments will decline and our business could suffer.
The
cash access industry is subject to change, and we must keep pace
with the changes to successfully compete.
The demand for our products and services is affected by new and
evolving technology and industry standards. Cash access services
are based on existing financial services and payment methods,
which are also continually evolving. Our future success will
depend, in part, upon our ability to successfully develop and
introduce new cash access services based on emerging financial
services and payment methods. Stored value cards, Internet-based
payment methods and the use of portable consumer devices such as
personal digital assistants and mobile telephones are examples
of evolving payment technologies that could impact our business.
Our future success will depend, in part, upon our ability to
successfully develop and introduce new cash access products and
services and to enhance our existing products and services to
respond to changes in technology and industry standards on a
timely basis. The products or services that we choose to develop
may not achieve market acceptance or obtain any necessary
regulatory approval. In addition, alternative products, services
or technologies may replace our products and services or render
them obsolete. If we are unable to develop new products or
services or enhance existing products or services in a timely
and cost-effective manner in response to technological or market
changes, our business, financial condition and operating results
may be materially adversely affected.
The cash access industry also changes based on changing consumer
preferences. Our failure to recognize or keep pace with changing
preferences could have a material adverse effect on our
business, financial condition and operating results. For
example, we have observed a decline in the volume of check
cashing at gaming establishments over time as patron familiarity
and comfort with credit card cash advances, POS debit card
transactions and ATM cash withdrawal transactions has increased.
To the extent that we continue to rely on check warranty
services
43
for a substantial portion of our business, a continued decline
in check cashing volume could have a material adverse effect on
our business, financial condition and operating results.
Growth
of the gaming industry in any market is subject to political and
regulatory developments that are difficult to
anticipate.
We expect a substantial portion of our future growth to result
from the general expansion of the gaming industry. The expansion
of gaming activities in new markets can be very controversial
and may depend heavily on the support of national and local
governments. Changes in government leadership, failure to obtain
requisite voter support in referenda, failure of legislators to
enact enabling legislation and limitations on the volume of
gaming activity that is permitted in particular markets may
prevent us from expanding our operations into new markets. A
failure by the gaming industry to expand at the rate that we
expect could have a material adverse effect on our business,
growth rates, financial condition and operating results.
The United Kingdom (UK) Gambling Act 2005 (the
Gambling Act) has received Royal Assent and awaits
an order of the UK Secretary of State entering it into force as
law. As enacted, the Gambling Act could be interpreted to
prohibit our provision of credit card cash advances and POS
debit card transactions to patrons of casinos located in the
United Kingdom as early as September 2007. Such an
interpretation would have a material adverse effect on our
business, financial condition and operating results. We, and our
gaming establishment customers in the UK are consulting with the
UK Gambling Commission regarding the interpretation of the
Gambling Act and the nature of any secondary regulations to be
passed by the UK Secretary of State or conditions that may be
imposed upon operators or premises licenses with a view to
ensuring that services such as ours continue to be available in
UK gambling establishments. If these efforts are not successful,
we may be prohibited from providing one or more of our services
in UK gaming establishments upon implementation of the Gambling
Act.
We are
subject to extensive governmental gaming regulation, which may
harm our business.
We are subject to a variety of regulations in the jurisdictions
in which we operate. Most of the jurisdictions in which we
operate distinguish between gaming-related suppliers and
vendors, such as manufacturers of slot machine or other gaming
devices, and non-gaming suppliers and vendors, such as food and
beverage purveyors, construction contractors and laundry and
linen suppliers. In these jurisdictions, we are generally
characterized as a non-gaming supplier or vendor and we must
obtain a non-gaming suppliers or vendors license,
qualification or approval. The obtaining of these licenses,
qualifications or approvals and the regulations imposed on
non-gaming suppliers and vendors are typically less stringent
than for gaming-related suppliers and vendors. However, a few of
the jurisdictions in which we do business do not distinguish
between gaming-related and non-gaming related suppliers and
vendors, and in those jurisdictions we currently are subject to
the same stringent licensing, qualification and approval
requirements and regulations that are imposed upon vendors and
suppliers that would be characterized as gaming-related in other
jurisdictions. Such requirements include licensure or finding of
suitability for some of our officers, directors and beneficial
owners of our securities. If regulatory authorities were to find
any such officer, director or beneficial owner unsuitable, or if
any such officer, director, or beneficial owner fails to comply
with any licensure requirements, we would be required to sever
our relationship with that person. Some public issuances of
securities and other transactions by us also require the
approval of regulatory authorities.
If we must obtain a gaming-related suppliers or
vendors license, qualification or approval because of the
introduction of new products (such as products related to
cashless gaming) or services or because of a change in the laws
or regulations, or interpretation thereof, our business could be
materially adversely affected. This increased regulation over
our business could include, but is not limited to: requiring the
licensure or finding of suitability in many jurisdictions of any
officer, director, key employee or beneficial owner of our
securities; the termination or disassociation with any officer,
director, key employee or beneficial owner of our securities
that fails to file an application or to obtain a license or
finding of suitability; the submission of detailed financial and
operating reports; submission of reports of material loans,
leases and financing; and, requiring regulatory approval of some
commercial transactions such as the transfer or pledge of equity
interests in us.
Prior changes in our ownership, management and corporate
structure, including the recapitalization of our ownership and
our conversion from a limited liability company to a corporation
in 2004, required us to notify many of the state and tribal
gaming regulators under whose jurisdiction we operate. In many
cases, those regulators have asked us for further information
and explanation of these changes. To date, we have satisfied
some of these inquiries, and are continuing to cooperate with
those that are ongoing. Given the magnitude of the changes in
our ownership that resulted from recapitalization, we were
required to reapply for new permits or licenses in many
jurisdictions but we were not
44
required to discontinue our operation during the period of
re-application. Any new gaming license or related approval that
may be required in the future may not be granted, and our
existing licenses may be revoked, suspended, limited or may not
be renewed. In some jurisdictions we are in the process of
obtaining licenses and have yet to receive final approval of
such licenses from the applicable regulatory authority. In these
jurisdictions, we operate under temporary licenses or without a
license. We may not be issued a license in these jurisdictions.
Regulatory authorities at the federal, state, local and tribal
levels have broad powers with respect to the licensing of
gaming-related activities and may revoke, suspend, condition or
limit our licenses, impose substantial fines and take other
actions against us or the gaming establishments that are our
customers, any one of which could have a material adverse effect
on our business, financial condition and operating results. Any
new gaming license or related approval that may be required in
the future may not be granted, and our existing licenses may not
be renewed or may be revoked, suspended or limited. If
additional gaming regulations are adopted in a jurisdiction in
which we operate, such regulations could impose restrictions or
costs that could have a material adverse effect on our business.
From time to time, various proposals are introduced in the
legislatures of some of the jurisdictions in which we have
existing or planned operations that, if enacted, could adversely
affect the tax, regulatory, operational or other aspects of the
gaming industry or cash access in the gaming industry.
Legislation of this type may be enacted in the future.
In addition, some of the new products and services that we may
develop cannot be offered in the absence of regulatory approval
of the product or service or licensing of us, or both. For
example, our TODD cashless gaming product has to date only been
approved for use at one casino and cannot be used at any other
location until we receive approval from the appropriate
authority in such additional location. These approvals could
require that we and our officers, directors or ultimate
beneficial owners obtain a license or be found suitable and that
the product or service be approved after testing and review. We
may fail to obtain any such approvals in the future.
When contracting with tribal owned or controlled gaming
establishments, we become subject to tribal laws and regulations
that may differ materially from the non-tribal laws and
regulations under which we generally operate. In addition to
tribal gaming regulations that may require us to provide
disclosures or obtain licenses or permits to conduct our
business on tribal lands, we may also become subject to tribal
laws that govern our contracts. These tribal governing laws may
not provide us with processes, procedures and remedies that
enable us to enforce our rights as effectively and
advantageously as the processes, procedures and remedies that
would be afforded to us under non-tribal laws, or to enforce our
rights at all. Many tribal laws permit redress to a tribal
adjudicatory body to resolve disputes; however, such redress is
largely untested in our experience. We may be precluded from
enforcing our rights against a tribal body under the legal
doctrine of sovereign immunity. A change in tribal laws and
regulations or our inability to obtain required licenses or
licenses to operate on tribal lands or enforce our contract
rights under tribal law could have a material adverse effect on
our business, financial condition and operating results.
Many
of the financial services that we provide are subject to
extensive rules and regulations, which may harm our
business.
Our Central Credit gaming patron credit bureau services are
subject to the Fair Credit Reporting Act, the Fair and Accurate
Credit Transactions Act of 2003 and similar state laws. Our
QuikCredit service and TeleChecks and our collection
practices in connection with dishonored checks with respect to
which TeleCheck or Central Credit has issued authorizations
pursuant to TeleChecks or Central Credits check
warranty service, are subject to the Fair Debt Collections
Practices Act and applicable state laws relating to debt
collection. All of our cash access services and patron marketing
services are subject to the privacy provisions of state and
federal law, including the Gramm-Leach-Bliley Act. Our POS debit
card transactions and ATM withdrawal services are subject to the
Electronic Fund Transfer Act. Our ATM services are subject
to the applicable state banking regulations in each jurisdiction
in which we operate ATMs. Our ATM services may also be subject
to local regulations relating to the imposition of daily limits
on the amounts that may be withdrawn from ATM machines, the
location of ATM machines and our ability to surcharge
cardholders who use our ATM machines. The cash access services
we provide are subject to recordkeeping and reporting
obligations under the Bank Secrecy Act and the USA PATRIOT Act
of 2001. In most gaming establishments, our cash access services
are provided through gaming establishment cashier personnel, in
which case the gaming establishment is required to file Currency
Transaction Reports, or CTRs, or Suspicious Activity Reports, or
SARs. In a limited number of gaming establishments, we provide
our cash access services directly to patrons at satellite
cashiers or booths that we staff and operate, in which case we
are required to file CTRs or SARs on a timely basis. If we fail
to file these CTRs or SARs on a timely basis or if we are found
to be noncompliant in any way with these laws, we could be
subject to substantial civil and criminal penalties. In
45
jurisdictions in which we serve as a check casher or offer our
QuikCredit service, we are subject to the applicable state
licensing requirements and regulations governing check cashing
activities and deferred deposit service providers. Our entry
into the consumer credit business through the provision of a
private label credit card through our Arriva Card, Inc.
subsidiary subjects us to compliance with a number of additional
laws, regulations and card association rules. In addition, our
relationship with Integrated Payment Systems, Inc. and
Integrated Payment Systems Canada Inc. expires on
December 31, 2006, and we are considering obtaining money
transmitter licenses in many states, which would cause us to
become subject to state licensing requirements and regulations
governing money transmitters.
In the event that any regulatory authority determines that the
manner in which we provide cash access services, patron
marketing services or gaming patron credit bureau services is
not in compliance with existing rules and regulations, or the
regulatory authorities adopt new rules or regulations that
prohibit or restrict the manner in which we provide cash access
services, patron marketing services or gaming patron credit
bureau services, we may be forced to modify the manner in which
we operate, or stop processing certain types of cash access
transactions or providing patron marketing services or gaming
patron credit bureau services altogether. We may also be
required to pay substantial penalties and fines if we fail to
comply with applicable rules and regulations. For example, if we
fail to file CTRs or SARs on a timely basis or if we are found
to be noncompliant in any way with either the Bank Secrecy Act
or the USA PATRIOT Act of 2001, we could be subject to
substantial civil and criminal penalties. In addition, our
failure to comply with applicable rules and regulations could
subject us to private litigation. Any such actions could have a
material adverse effect on our business, financial condition and
operating results.
Following the events of September 11, 2001, the United
States and other governments have imposed and are considering a
variety of new regulations focused on the detection and
prevention of money laundering and money transmitting to or from
terrorists and other criminals. Compliance with these new
regulations may impact our business operations or increase our
costs.
As we develop new products and services, we may become subject
to additional regulations. For example, in the event that we
form or acquire a bank or industrial loan company, we would
become subject to a number of additional banking and financial
institution regulations, which may include the Bank Holding
Company Act. These additional regulations could substantially
restrict the nature of the business in which we may engage and
the nature of the businesses in which we may invest. In
addition, changes in current laws or regulations and future laws
or regulations may restrict our ability to continue our current
methods or operation or expand our operations and may have a
material adverse effect on our business, results of operations
and financial condition.
Finally, the Gambling Act has received Royal Assent and awaits
an order of the UK Secretary of State entering it into force as
law. As enacted, the Gambling Act could be interpreted to
prohibit GCAs provision of credit card cash advances and
POS debit card transactions to patrons of casinos located in the
United Kingdom as early as September 2007. Such an
interpretation would have a material adverse effect on our
business, financial condition and operating results. We, and our
gaming establishment customers in the UK are consulting with the
UK Gambling Commission regarding the interpretation of the
Gambling Act and the nature of any secondary regulations to be
passed by the UK Secretary of State or conditions that may be
imposed upon operators or premises licenses with a view to
ensuring that services such as ours continue to be available in
UK gambling establishments. If these efforts are not successful,
we may be prohibited from providing one or more of our services
in UK casinos upon implementation of the Gambling Act.
If
consumer privacy laws change, or if we are required to change
our business practices, the value of our patron marketing
services may be hampered.
Our patron marketing services depend on our ability to collect
and use non-public personal information relating to patrons who
use our products and services and the transactions they
consummate using our services. We are required by applicable
privacy legislation to safeguard and protect the privacy of such
information, to make disclosures to patrons regarding our
privacy and information sharing policies and, in some cases, to
provide patrons an opportunity to opt out of the use
of their information for certain purposes. The failure or
circumvention of the means by which we safeguard and protect the
privacy of information we gather may result in the dissemination
of non-public personal information, which may cause us
reputational harm and may expose us to liability to the affected
individuals and regulatory enforcement proceedings or fines.
Regulators reviewing our policies and practices may require us
to modify our practices in a material or immaterial manner or
impose fines or other penalties if they believe that our
policies and practices do not meet the necessary standard. To
the extent that our patron marketing services have in the past
failed or now or in the future fail to comply with applicable
law, our
46
privacy policies or the notices that we provide to patrons, we
may become subject to actions by a regulatory authority or
patrons which cause us to pay monetary penalties or require us
to modify the manner in which we provide patron marketing
services. To the extent that patrons exercise their right to
opt out, our ability to leverage existing and future
databases of information would be curtailed. Consumer and data
privacy laws are evolving, and due to recent high profile thefts
and losses of sensitive consumer information from protected
databases, we anticipate that such laws will be broadened in
their scope and application, impose additional requirements and
restrictions on gathering and using patron information or narrow
the types of information that may be collected or used for
marketing or other purposes or require patrons to
opt-in to the use of their information for specific
purposes, which will hamper the value of our patron marketing
services.
Responsible
gaming pressures could result in a material adverse effect on
our business and operating results.
Responsible gaming pressures can have a similar effect on us as
governmental gaming regulation. Our ability to expand our
business and introduce new products and services depends in part
on the support of, or lack of opposition from, social
responsibility organizations that are dedicated to addressing
problem gaming. If we are unable to garner the support of
responsible gaming organizations or if we face substantial
opposition from responsible gaming organizations, we may face
additional difficulties in sustaining our existing customer
relationships, establishing new customer relationships, or
obtaining required regulatory approvals for new products or
services, each of which could have a material adverse effect on
our business, financial condition and operating results.
Lawsuits could be filed against gaming establishments and other
gaming related product and service providers on behalf of
problem gamblers. We may be named in such litigation because we
provide patrons the ability to access their cash in gaming
establishments. This litigation could develop as individual
complaints or as mass tort or class action claims. We would
vigorously defend ourselves in any such litigation, and this
defense could result in substantial expense to us and
distraction of our management. The outcome of any such
litigation would be substantially uncertain, and it is possible
that our business, financial condition and operating results
could be materially affected by an unfavorable outcome against
either us or our gaming establishment customers.
Risk
related to our capital structure
Our
common stock has only been publicly traded since
September 22, 2005 and we expect that the price of our
common stock will fluctuate substantially.
There has only been a public market for our common stock since
September 22, 2005. The market price of our common stock
may fluctuate significantly in response to a number of factors,
some of which are beyond our control, including those described
above under Risks related to our business,
Risks related to the industry and the following:
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our failure to maintain our current customers, including because
of consolidation in the gaming industry;
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increases in commissions paid to gaming establishments as a
result of competition;
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increases in interchange rates or processing or other fees paid
by us or decreases in reverse interchange rates;
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actual or anticipated fluctuations in our or our
competitors revenue, operating results or growth rate;
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our inability to adequately protect or enforce our intellectual
property rights;
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any adverse results in litigation initiated by us or by other
against us;
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our inability to make payments on our outstanding indebtedness
as they become due or our inability to undertake actions that
might otherwise benefit us based on the financial and other
restrictive covenants contained in our senior secured credit
facilities and the indenture for our senior subordinated notes;
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the loss of a significant supplier or strategic partner, or the
failure of a significant supplier or strategic partner to
provide the goods or services that we rely on them for;
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our inability to introduce successful, new products and services
in a timely manner or the introduction of new products or
services by our competitors that reduce the demand for our
products and services;
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our failure to successfully enter new markets or the failure or
new markets to develop in the time and manner that we anticipate;
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announcements by our competitors of significant new contracts or
contract renewals or of new products or services;
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changes in general economic conditions, financial markets, the
gaming industry or the payments processing industry;
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the trading volume of our common stock;
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sales of common stock or other actions by our current officers,
directors and stockholders;
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acquisitions, strategic alliances or joint ventures involving us
or our competitors;
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future sales of our common stock or other securities;
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the failure of securities analysts to cover our common stock or
changes in financial estimates or recommendations by analysts;
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our failure to meet the revenue, net income or earnings per
share estimates of securities analysts or investors;
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additions or departures of key personnel;
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terrorist acts, theft, vandalism, fires, floods or other natural
disasters; and
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rumors or speculation as to any of the above which we may be
unable to confirm or deny due to disclosure restrictions imposed
on us by law or which we otherwise deem imprudent to comment
upon.
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In addition, the stock market in general has experienced price
and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of particular
businesses. These broad market and industry factors may
materially reduce the market price of our common stock,
regardless of our operating performance.
Securities class action litigation is often brought against a
company following a decline in the market price of its
securities. The risk is especially acute for us because
companies such as ours have experienced significant share price
volatility in the past. As a result, we may in the future be a
target of similar litigation. Securities litigation could result
in substantial costs defending the lawsuit and divert
managements attention and resources, and could seriously
harm our business and negatively impact our stock price.
Future
sales of our common stock may cause the market price of our
common stock to drop significantly, even if our business is
doing well.
The market price of our common stock could decline as a result
of sales of additional shares of our common stock by us, sales
by our stockholders of common stock that is not freely tradable
but may be resold under Rules 144, 144(k) and 701 under the
Securities Act of 1933, as amended, or the perception that these
sales could occur. In the future, we may issue additional shares
or options to purchase additional shares to our employees,
directors and consultants, in connection with corporate
alliances or acquisitions, and in follow-on offerings to raise
additional capital. Based on all of these factors, sales of a
substantial number of shares of our common stock in the public
market could occur at any time. These sales could reduce the
market price of our common stock. In addition, future sales of
our common stock by our stockholders could make it more
difficult for us to sell additional shares of our common stock
or other securities in the future.
M&C
International and entities affiliated with Summit Partners
possess significant voting power and may take actions that are
not in the best interests of our other
stockholders.
M&C International and entities affiliated with Summit
Partners own or control shares representing, in the aggregate,
approximately 57% of the outstanding shares of our common stock.
Accordingly, M&C International and these entities affiliated
with Summit Partners will exert substantial influence over all
matters requiring approval of our stockholders, including the
election and removal of directors and the approval of mergers or
other business combinations. M&C Internationals and
these entities ownership may have the effect of delaying
or preventing a change of control of our company or discouraging
others from making tender offers for our shares, which could
prevent stockholders from receiving a premium for their shares.
These actions may be taken even if other stockholders oppose
them and even if they are not in the interests of other
stockholders.
Conflicts
of interest may arise because some of our directors are also
principals or partners of our controlling
stockholders.
Two of our directors are principals of M&C International and
two of our other directors are partners and members of various
entities affiliated with Summit Partners. We depend on licenses
and services provided by entities affiliated with M&C
International or its principals to provide many of the financial
services that we offer to patrons. Summit Partners and its
affiliates may invest in entities that directly or indirectly
compete with us or
48
companies in which they currently invest may begin competing
with us. As a result of these relationships, when conflicts
between the interests of M&C International or Summit
Partners, on the one hand, and the interests of our other
stockholders, on the other hand, arise, these directors may not
be disinterested.
Some
provisions of our certificate of incorporation and bylaws may
delay or prevent transactions that many stockholders may
favor.
Some provisions of our amended and restated certificate of
incorporation and amended and restated bylaws may have the
effect of delaying, discouraging, or preventing a merger or
acquisition that our stockholders may consider favorable or a
change in our management or our Board of Directors. These
provisions:
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divide our board of directors into three separate classes
serving staggered three-year terms, which will have the effect
of requiring at least two annual stockholder meetings instead of
one, to replace a majority of our directors, which could have
the effect of delaying of preventing a change in our control or
management;
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provide that special meetings of stockholders can only be called
by our Board of Directors, chairman of the board or chief
executive officer. In addition, the business permitted to be
conducted at any special meeting of stockholders is limited to
the business specified in the notice of such meeting to the
stockholders;
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provide for an advance notice procedure with regard to business
to be brought before a meeting of stockholders which may delay
or preclude stockholders from bringing matters before a meeting
of stockholders or from making nominations for directors at a
meeting of stockholders, which could delay or deter takeover
attempts or changes in management;
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eliminate the right of stockholders to act by written consent so
that all stockholder actions must be effected at a duly called
meeting;
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provide that directors may only be removed for cause with the
approval of stockholders holding a majority of our outstanding
voting stock;
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provide that vacancies on our Board of Directors may be filled
by a majority, although less than a quorum, of directors in
office and that our Board of Directors may fix the number of
directors by resolution;
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allow our Board of Directors to issue shares of preferred stock
with rights senior to those of the common stock and that
otherwise could adversely affect the rights and powers,
including voting rights and the right to approve or not to
approve an acquisition or other change in control, of the
holders of common stock, without any further vote or action by
the stockholders; and
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do not provide for cumulative voting for our directors, which
may make it more difficult for stockholders owning less than a
majority of our stock to elect any directors to our Board of
Directors. In addition, we are also subject to Section 203
of the Delaware General Corporation Law, which provides, subject
to enumerated exceptions, that if a person acquires 15% or more
of our voting stock, the person is an interested
stockholder and may not engage in business
combinations with us for a period of three years from the
time the person acquired 15% or more of our voting stock.
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These provisions may have the effect of entrenching our
management team and may deprive you of the opportunity to sell
your shares to potential acquirers at a premium over prevailing
prices. This potential inability to obtain a premium could
reduce the price of our common stock.
If we
fail to attract or retain independent directors, we may face
unfavorable public disclosure, a halt in the trading of our
common stock and delisting from the New York Stock
Exchange.
Under the Sarbanes-Oxley Act and the rules and regulations of
the New York Stock Exchange, we are required to establish and
maintain a board of directors consisting of a majority of
independent directors and an audit committee consisting entirely
of independent directors. A majority of our directors satisfy
the applicable independence requirements, but the loss of any
one independent director would result in less than a majority of
our directors being independent. All but one of the members of
our audit committee satisfy the applicable independence
requirements, and we currently rely on an exemption for newly
public companies that requires all of the members of our audit
committee to satisfy the applicable independence requirements by
the first anniversary of our initial public offering, which will
be September 2006. We are currently looking for an individual
that satisfies the applicable independence requirements to join
our board of directors and audit committee. If we fail to
maintain a board of directors consisting of a majority of
independent directors or if we fail to attract an additional
director that satisfies the applicable independence
requirements, we will fail to comply with the corporate
governance listing
49
requirements of the New York Stock Exchange, which we would be
required to publicly disclose, which may in turn cause a
reduction in the trading price of our common stock. In addition,
our failure to comply with these corporate governance listing
requirements may result in a halt in the trading of our common
stock and the delisting of our common stock from the New York
Stock Exchange, which may result in there being no public market
for shares of our common stock.
We do
not intend to pay dividends in the future.
We have never declared or paid any cash dividends on our common
stock. We currently intend to retain all available funds and any
future earnings for use in the operation and expansion of our
business and do not anticipate paying any cash dividends in the
foreseeable future. In addition, the terms of our current senior
secured credit facilities limit our ability to pay dividends,
and our future debt or credit facilities may preclude us from
paying any dividends. As a result, capital appreciation, if any,
of our common stock will be the sole source of potential gain
for our stockholders for the foreseeable future.
50
ITEM 6. EXHIBITS
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Exhibit No.
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Description.
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10
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.1(1)
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Amendment No. 1 to Employment
Agreement, dated as of March 16, 2006, by and between
Global Cash Access, Inc. and Kirk E. Sanford.
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10
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.2(2)
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Amendment No. 1 to Employment
Agreement, dated as of March 16, 2006, by and between
Global Cash Access, Inc. and Harry C. Hagerty.
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10
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.3(3)
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Amendment No. 1 to Employment
Agreement, dated as of March 16, 2006, by and between
Global Cash Access, Inc. and Kathryn S. Lever.
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.1*
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Certification of Kirk E. Sanford,
Chief Executive Officer of Global Cash Access Holdings, Inc.
dated May 15, 2006 in accordance with 18 U.S.C. 1350,
as adopted pursuant to Section 302 of the
Sarbanes-Oxley
Act of 2002.
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31
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.2*
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Certification of Harry C. Hagerty,
Chief Financial Officer of Global Cash Access Holdings, Inc.
dated May 15, 2006 in accordance with 18 U.S.C. 1350,
as adopted pursuant to Section 302 of the
Sarbanes-Oxley
Act of 2002.
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32
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.1*
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Certification of Kirk E. Sanford,
Chief Executive Officer of Global Cash Access Holdings, Inc.
dated May 15, 2006 in accordance with 18 U.S.C. 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley
Act of 2002.
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.2*
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Certification of Harry C. Hagerty,
Chief Financial Officer of Global Cash Access Holdings, Inc.
dated May 15, 2006 in accordance with 18 U.S.C. 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley
Act of 2002.
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(1) |
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Incorporated by reference to Exhibit 10.1 of the Global
Cash Access Holdings, Inc. Current Report on
Form 8-K
(File
No. 001-32622)
filed with the SEC on March 17, 2006. |
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(2) |
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Incorporated by reference to Exhibit 10.2 of the Global
Cash Access Holdings, Inc. Current Report on
Form 8-K
(File
No. 001-32622)
filed with the SEC on March 17, 2006. |
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(3) |
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Incorporated by reference to Exhibit 10.3 of the Global
Cash Access Holdings, Inc. Current Report on
Form 8-K
(File
No. 001-32622)
filed with the SEC on March 17, 2006. |
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* |
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Filed herewith. |
51
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
GLOBAL CASH ACCESS HOLDINGS, INC.
(Registrant)
/s/ Harry C. Hagerty
Harry C. Hagerty
Chief Financial Officer
(For the Registrant and as Principal Financial Officer and as
Chief Accounting Officer)
(Date) May 15, 2006
52
EXHIBIT INDEX
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Exhibit No.
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Description.
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10
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.1(1)
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Amendment No. 1 to Employment
Agreement, dated as of March 16, 2006, by and between
Global Cash Access, Inc. and Kirk E. Sanford.
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10
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.2(2)
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Amendment No. 1 to Employment
Agreement, dated as of March 16, 2006, by and between
Global Cash Access, Inc. and Harry C. Hagerty.
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10
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.3(3)
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Amendment No. 1 to Employment
Agreement, dated as of March 16, 2006, by and between
Global Cash Access, Inc. and Kathryn S. Lever.
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31
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.1
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Certification of Kirk E. Sanford,
Chief Executive Officer of Global Cash Access Holdings, Inc.
dated May 15, 2006 in accordance with 18 U.S.C. 1350,
as adopted pursuant to Section 302 of the
Sarbanes-Oxley
Act of 2002.
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31
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.2
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Certification of Harry C. Hagerty,
Chief Financial Officer of Global Cash Access Holdings, Inc.
dated May 15, 2006 in accordance with 18 U.S.C. 1350,
as adopted pursuant to Section 302 of the
Sarbanes-Oxley
Act of 2002.
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32
|
.1
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Certification of Kirk E. Sanford,
Chief Executive Officer of Global Cash Access Holdings, Inc.
dated May 15, 2006 in accordance with 18 U.S.C. 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley
Act of 2002.
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32
|
.2
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Certification of Harry C. Hagerty,
Chief Financial Officer of Global Cash Access Holdings, Inc.
dated May 15, 2006 in accordance with 18 U.S.C. 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley
Act of 2002.
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(1) |
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Incorporated by reference to Exhibit 10.1 of the Global
Cash Access Holdings, Inc. Current Report on
Form 8-K
(File
No. 001-32622)
filed with the SEC on March 17, 2006. |
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(2) |
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Incorporated by reference to Exhibit 10.2 of the Global
Cash Access Holdings, Inc. Current Report on
Form 8-K
(File
No. 001-32622)
filed with the SEC on March 17, 2006. |
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(3) |
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Incorporated by reference to Exhibit 10.3 of the Global
Cash Access Holdings, Inc. Current Report on
Form 8-K
(File
No. 001-32622)
filed with the SEC on March 17, 2006. |
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* |
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Filed herewith |
53