UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM 10-Q
(Mark One) |
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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: September 30, 2014 |
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OR |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the transition period from to
Commission
file number: 0-23588
GAMING PARTNERS
INTERNATIONAL CORPORATION
(Exact name
of registrant as specified in its charter)
NEVADA |
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88-0310433 |
(State or other jurisdiction |
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(I.R.S. Employer Identification No.) |
of incorporation or organization) |
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1700 Industrial Road, |
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89102 |
Las Vegas, Nevada |
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(Zip Code) |
(Address of principal executive offices) |
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(702) 384-2425
(Registrant’s
telephone number, including area code)
None
(Former name,
former address, and former fiscal year, if changed since last report)
Indicate by
check mark whether the registrant (1) has filed all reports required to be filed by Section 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 x
No o
Indicate by
check mark whether the registrant has submitted electronically and posted on the Corporate Website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for
such shorter period that registrant was required to submit and post such files). Yes x No o
Indicate by
check mark whether the registrant is a large accelerated filer an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o |
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Accelerated filer o |
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Non-accelerated filer o |
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Smaller reporting company x |
(Do not check if a smaller reporting company) |
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The number of
shares outstanding of each of the registrant’s classes of common stock as of November 4, 2014 was 7,916,094 shares of Common
Stock.
GAMING PARTNERS
INTERNATIONAL CORPORATION
QUARTERLY
REPORT ON FORM 10-Q FOR THE QUARTER ENDED September 30, 2014
TABLE OF
CONTENTS
PART I. FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
CONDENSED
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands,
except share amounts)
| |
September 30, | | |
December 31, | |
| |
2014 | | |
2013 | |
ASSETS | |
| | | |
| | |
Current Assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 9,745 | | |
$ | 14,492 | |
Marketable securities | |
| 1,597 | | |
| 5,724 | |
Accounts receivable, net | |
| 10,628 | | |
| 5,905 | |
Inventories | |
| 10,730 | | |
| 7,407 | |
Prepaid expenses | |
| 706 | | |
| 965 | |
Deferred income tax asset | |
| 619 | | |
| 628 | |
Other current assets | |
| 2,454 | | |
| 3,054 | |
Total current assets | |
| 36,479 | | |
| 38,175 | |
Property and equipment, net | |
| 14,460 | | |
| 10,996 | |
Intangibles, net | |
| 2,873 | | |
| 985 | |
Goodwill | |
| 10,275 | | |
| - | |
Deferred income tax asset | |
| 3,220 | | |
| 3,643 | |
Inventories, non-current | |
| 443 | | |
| 175 | |
Other assets | |
| 2,239 | | |
| 1,475 | |
Total assets | |
$ | 69,989 | | |
$ | 55,449 | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |
| | | |
| | |
Current Liabilities: | |
| | | |
| | |
Demand line of credit | |
$ | 10,000 | | |
$ | - | |
Accounts payable | |
| 4,791 | | |
| 2,291 | |
Accrued liabilities | |
| 4,140 | | |
| 2,918 | |
Customer deposits and deferred revenue | |
| 2,175 | | |
| 646 | |
Income taxes payable | |
| 244 | | |
| 251 | |
Total current liabilities | |
| 21,350 | | |
| 6,106 | |
Deferred income tax liability | |
| 1,821 | | |
| 1,870 | |
Other liabilities | |
| 51 | | |
| - | |
Total liabilities | |
| 23,222 | | |
| 7,976 | |
Commitments and contingencies - see Note 9 | |
| | | |
| | |
Stockholders' Equity: | |
| | | |
| | |
Preferred stock, authorized 10,000,000 shares, $.01 par value, | |
| | | |
| | |
none issued and outstanding | |
| - | | |
| - | |
Common stock, authorized 30,000,000 shares, $.01 par value, | |
| | | |
| | |
8,207,077 and 7,916,094 issued and outstanding, respectively | |
| 82 | | |
| 82 | |
Additional paid-in capital | |
| 19,877 | | |
| 19,771 | |
Treasury stock at cost: 290,983 shares | |
| (2,262 | ) | |
| (2,262 | ) |
Retained earnings | |
| 28,688 | | |
| 28,205 | |
Accumulated other comprehensive income | |
| 382 | | |
| 1,677 | |
Total stockholders' equity | |
| 46,767 | | |
| 47,473 | |
Total liabilities and stockholders' equity | |
$ | 69,989 | | |
$ | 55,449 | |
See notes to
unaudited condensed consolidated financial statements.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands,
except per-share amounts)
| |
Three Months Ended | | |
Nine Months Ended | |
| |
September 30, | | |
September 30, | |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
Revenues | |
$ | 20,253 | | |
$ | 13,519 | | |
$ | 41,028 | | |
$ | 42,433 | |
Cost of revenues | |
| 13,447 | | |
| 9,095 | | |
| 28,710 | | |
| 29,343 | |
Gross profit | |
| 6,806 | | |
| 4,424 | | |
| 12,318 | | |
| 13,090 | |
Marketing and sales | |
| 1,840 | | |
| 1,683 | | |
| 4,486 | | |
| 4,692 | |
General and administrative | |
| 2,041 | | |
| 2,249 | | |
| 6,151 | | |
| 6,730 | |
Research and development | |
| 324 | | |
| 467 | | |
| 1,178 | | |
| 1,495 | |
Operating income | |
| 2,601 | | |
| 25 | | |
| 503 | | |
| 173 | |
Other income and (expense), net | |
| 127 | | |
| (8 | ) | |
| 232 | | |
| 30 | |
Income before income taxes | |
| 2,728 | | |
| 17 | | |
| 735 | | |
| 203 | |
Income tax provision (benefit) | |
| (40 | ) | |
| (66 | ) | |
| 252 | | |
| (359 | ) |
Net income | |
$ | 2,768 | | |
$ | 83 | | |
$ | 483 | | |
$ | 562 | |
Earnings per share: | |
| | | |
| | | |
| | | |
| | |
Basic | |
$ | 0.35 | | |
$ | 0.01 | | |
$ | 0.06 | | |
$ | 0.07 | |
Diluted | |
$ | 0.35 | | |
$ | 0.01 | | |
$ | 0.06 | | |
$ | 0.07 | |
Weighted-average shares of common stock outstanding: | |
| | | |
| | | |
| | | |
| | |
Basic | |
| 7,916 | | |
| 7,917 | | |
| 7,916 | | |
| 7,950 | |
Diluted | |
| 8,015 | | |
| 8,001 | | |
| 8,016 | | |
| 8,033 | |
See notes to
unaudited condensed consolidated financial statements.
CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(unaudited)
(in thousands)
| |
Three Months Ended | | |
Nine Months Ended | |
| |
September 30, | | |
September 30, | |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
Net income | |
$ | 2,768 | | |
$ | 83 | | |
$ | 483 | | |
$ | 562 | |
Other comprehensive income: | |
| | | |
| | | |
| | | |
| | |
Unrealized gain on securities, net of tax | |
| - | | |
| - | | |
| - | | |
| (1 | ) |
Amortization of pension transition asset, net of tax | |
| - | | |
| - | | |
| - | | |
| 4 | |
Foreign currency translation adjustment | |
| (1,145 | ) | |
| 606 | | |
| (1,295 | ) | |
| 161 | |
Other comprehensive (loss) income, net of tax | |
| (1,145 | ) | |
| 606 | | |
| (1,295 | ) | |
| 164 | |
Total comprehensive (loss) income | |
$ | 1,623 | | |
$ | 689 | | |
$ | (812 | ) | |
$ | 726 | |
See notes to
unaudited condensed consolidated financial statements.
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)
(in thousands,
except per share amounts)
| |
| | |
| | |
| | |
| | |
| | |
Accumulated | | |
| |
| |
Common Stock | | |
Additional | | |
| | |
| | |
Other | | |
| |
| |
| | |
| | |
Paid-In | | |
Treasury | | |
Retained | | |
Comprehensive | | |
| |
| |
Shares | | |
Amount | | |
Capital | | |
Stock | | |
Earnings | | |
Income | | |
Total | |
Balance, January 1, 2013 | |
| 8,045,904 | | |
$ | 82 | | |
$ | 19,563 | | |
$ | (1,250 | ) | |
$ | 27,039 | | |
$ | 1,187 | | |
$ | 46,621 | |
Net income | |
| - | | |
| - | | |
| - | | |
| - | | |
| 562 | | |
| - | | |
| 562 | |
Repurchases of common
stock | |
| (129,810 | ) | |
| - | | |
| - | | |
| (1,013 | ) | |
| - | | |
| - | | |
| (1,013 | ) |
Unrealized gain on securities,
net of tax | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1 | ) | |
| (1 | ) |
Stock compensation expense | |
| - | | |
| - | | |
| 168 | | |
| - | | |
| - | | |
| - | | |
| 168 | |
Amortization of pension
transition asset, | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
net of tax | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 4 | | |
| 4 | |
Foreign
currency translation adjustment | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 161 | | |
| 161 | |
Balance, September
30, 2013 | |
| 7,916,094 | | |
$ | 82 | | |
$ | 19,731 | | |
$ | (2,263 | ) | |
$ | 27,601 | | |
$ | 1,351 | | |
$ | 46,502 | |
Balance, January 1, 2014 | |
| 7,916,094 | | |
$ | 82 | | |
$ | 19,771 | | |
$ | (2,262 | ) | |
$ | 28,205 | | |
$ | 1,677 | | |
$ | 47,473 | |
Net income | |
| - | | |
| - | | |
| - | | |
| - | | |
| 483 | | |
| - | | |
| 483 | |
Stock compensation expense | |
| - | | |
| - | | |
| 106 | | |
| - | | |
| - | | |
| - | | |
| 106 | |
Foreign
currency translation adjustment | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,295 | ) | |
| (1,295 | ) |
Balance, September
30, 2014 | |
| 7,916,094 | | |
$ | 82 | | |
$ | 19,877 | | |
$ | (2,262 | ) | |
$ | 28,688 | | |
$ | 382 | | |
$ | 46,767 | |
See notes to
unaudited condensed consolidated financial statements.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
| |
Nine Months Ended | |
| |
September
30, | |
| |
2014 | | |
2013 | |
Cash Flows from Operating Activities | |
| | | |
| | |
Net income | |
$ | 483 | | |
$ | 562 | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |
| | | |
| | |
Depreciation | |
| 1,861 | | |
| 1,704 | |
Amortization of intangible assets | |
| 140 | | |
| 105 | |
Provision (benefit) for bad debt | |
| 100 | | |
| (6 | ) |
Deferred income taxes | |
| 376 | | |
| (1,005 | ) |
Stock compensation expense | |
| 106 | | |
| 168 | |
Loss on sale of property and equipment | |
| 25 | | |
| - | |
(Gain) on sale of marketable securities | |
| (6 | ) | |
| (13 | ) |
Change in operating assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| (2,547 | ) | |
| (943 | ) |
Inventories | |
| (1,953 | ) | |
| (227 | ) |
Prepaid expenses and other current assets | |
| 868 | | |
| (1,056 | ) |
Non-current other assets | |
| (833 | ) | |
| 75 | |
Accounts payable | |
| 1,297 | | |
| (373 | ) |
Customer deposits and deferred revenue | |
| 1,548 | | |
| (1,380 | ) |
Accrued liabilities | |
| 473 | | |
| (2,206 | ) |
Income taxes payable | |
| (7 | ) | |
| (327 | ) |
Net cash provided by (used in) operating activities | |
| 1,931 | | |
| (4,922 | ) |
Cash Flows from Investing Activities | |
| | | |
| | |
Purchases of marketable securities | |
| (4,603 | ) | |
| (2,107 | ) |
Proceeds from sale of marketable securities | |
| 8,537 | | |
| 9,351 | |
Purchase of business assets | |
| (19,750 | ) | |
| (775 | ) |
Purchase of intangible assets | |
| (25 | ) | |
| - | |
Capital expenditures | |
| (402 | ) | |
| (1,542 | ) |
Proceeds from sale of property and equipment | |
| 14 | | |
| - | |
Net cash (used in) provided by investing activities | |
| (16,229 | ) | |
| 4,927 | |
Cash Flows from Financing Activities | |
| | | |
| | |
Proceeds from demand line of credit | |
| 10,000 | | |
| - | |
Repurchases of common stock | |
| - | | |
| (1,013 | ) |
Net cash provided by (used in) financing activities | |
| 10,000 | | |
| (1,013 | ) |
Effect of exchange rate changes on cash | |
| (449 | ) | |
| (153 | ) |
Net decrease in cash and cash equivalents | |
| (4,747 | ) | |
| (1,161 | ) |
Cash and cash equivalents, beginning of period | |
| 14,492 | | |
| 14,038 | |
Cash and cash equivalents, end of period | |
$ | 9,745 | | |
$ | 12,877 | |
Supplemental disclosure of cash flow information: | |
| | | |
| | |
Cash paid for interest | |
$ | 63 | | |
$ | - | |
Cash (received) paid for income taxes, net of refunds | |
$ | (780 | ) | |
$ | 1,684 | |
Supplemental disclosure of non-cash investing and financing activities | |
| | | |
| | |
Property and equipment acquired through accounts payable | |
$ | 163 | | |
| - | |
See notes to
unaudited condensed consolidated financial statements.
CONDENSED
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(unaudited)
Note 1. Nature of Business
and Significant Accounting Policies
Organization and Nature of
Business
Gaming Partners International Corporation
(GPIC) is headquartered in Las Vegas, Nevada and has three operating subsidiaries: Gaming Partners International USA, Inc.
(GPI USA) (including GPI Mexicana, S.A. de C.V (GPI Mexicana) our maquiladora manufacturing operation in Mexico), Gaming Partners
International SAS (GPI SAS), and Gaming Partners International Asia Limited (GPI Asia). On July 1, 2014, we acquired substantially
all of the net gaming assets of GemGroup Inc. and its subsidiaries (GemGroup) (see Note 2– Acquisition). Our
subsidiaries have the following distribution and product focus:
| • | GPI
USA sells in the United States, Canada, the Caribbean, and Latin America. GPI USA sells
our full product line, with most of the products manufactured at our facility in San
Luis Rio Colorado, Mexico and, since July 1, 2014, at our facility in Blue Springs, Missouri.
The remainder is either manufactured in France or purchased from United States vendors.
We also warehouse inventory in San Luis, Arizona and at our Las Vegas, Nevada headquarters,
and have sales offices in Las Vegas; Atlantic City, New Jersey; and Gulfport, Mississippi. |
| • | GPI
SAS sells primarily in Europe and Africa out of its office in Beaune, France. GPI SAS
predominantly sells casino currencies, including both American-style, known as chips,
and European-style, known as plaques and jetons. Most of the products sold by GPI SAS
are manufactured in France, with the remainder manufactured in Mexico. |
| • | GPI Asia, with an office in Macau S.A.R., China, is the exclusive distributor of GPI USA and GPI SAS products
in the Asia-Pacific region. GPI Asia primarily sells casino currencies, manufactured in France or in Mexico, as well as radio frequency
identification device (RFID) product solutions. Since July 1, 2014, GPI Asia also sells layouts manufactured in Macau.
|
GPIC was formed in 2002 through a combination
between Paul-Son Gaming Corporation and Bourgogne et Grasset S.A. initiated by the late Francois Carrette, whose firm, Holding
Wilson, S.A., remains GPIC’s controlling stockholder. We have established brand names such as Paulson®, Bourgogne
et Grasset® (BG®), Bud Jones® and Blue Chip (BC®). On July 1,
2014, GPIC started manufacturing and selling playing cards and table layouts under the recently acquired Gemaco® brand name
(see Note 2 – Acquisition). GPI USA was founded in 1963 as Paul-Son Gaming Supplies, Inc. by Paul S. Endy, Jr., and
initially manufactured and sold dice to casinos in Las Vegas. GPI SAS was founded in 1923 as Etablissements Bourgogne et Grasset
S.A. by Etienne Bourgogne and Claudius Grasset in Beaune, France to produce and sell counterfeit-resistant currencies to casinos
in Monaco. GPIC and each of its subsidiaries are sometimes collectively referred to herein as the “Company,” “us,”
“we” or “our.”
Our business
activities include the manufacture and supply of casino currencies, table layouts, playing cards, gaming furniture, table accessories,
dice, roulette wheels, and RFID readers and software, all of which are used with casino table games such as blackjack, poker,
baccarat, craps, and roulette.
Significant Accounting Policies
Basis of Consolidation and
Presentation. The condensed consolidated financial statements include the accounts of GPIC and its wholly-owned subsidiaries
GPI SAS, GPI USA, GPI Mexicana, and GPI Asia. All material intercompany balances and transactions have been eliminated in consolidation.
The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States (US GAAP) for interim financial information and do not include all of the information and notes required
by generally accepted accounting principles for complete financial statements. These statements should be read in conjunction
with our annual audited consolidated financial statements and related notes included in our Form 10-K for the year ended
December 31, 2013.
These unaudited
condensed consolidated financial statements, in the opinion of management, reflect only normal and recurring adjustments necessary
for a fair presentation of results for such periods. The results of operations for an interim period are not necessarily indicative
of the results for the full year.
Goodwill and Intangible Assets. Goodwill is recorded
when the consideration paid for an acquisition exceeds the fair value of net tangible and intangible assets acquired. Goodwill
is measured and tested for impairment on an annual basis or more frequently if we believe indicators of impairment exist. Triggering
events for impairment reviews may be indicators such as adverse industry or economic trends, restructuring actions, lower projections
of profitability, or a sustained decline in our market capitalization.
Intangible assets are
amortized on a straight-line basis over their economic lives. When the carrying value is not considered recoverable, an impairment
loss for the amount by which the carrying value of an intangible asset exceeds its fair value is recognized, with an offsetting
reduction in the carrying value of the related intangible asset.
Recently Issued Accounting
Standards
In May 2014,
the FASB issued ASU 2014-09, Revenues from Contracts with Customers (Topic 606). This guidance applies to any entity that
either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial
assets unless those contracts are within the scope of other standards. The core principle of this guidance is that an entity should
recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those goods or services. This guidance supersedes existing revenue
recognition guidance, including most industry-specific guidance, as well as certain related guidance on accounting for contract
costs. For public entities, this guidance is effective for annual reporting periods beginning after December 15, 2016. Early application
is not permitted. The Company is currently evaluating the impact of this ASU on its financial statements.
Note 2. Acquisition
On July 1, 2014, we purchased substantially
all of the gaming assets of GemGroup (Acquired Business), a manufacturer of casino currency, cards and table layouts primarily
sold under the Gemaco® brand, for $19.75 million subject to certain post-closing working capital adjustments. Two million dollars
of the purchase price was placed in escrow to secure GemGroup's indemnification obligations. We borrowed $10.0 million under a
demand line of credit with HSBC Bank USA, to partially fund the purchase. This acquisition strengthens our manufacturing capabilities
and increases our US market share in both playing cards and table layouts, two important sources of recurring revenue. Further,
it expands our product offerings in the growing Asia-Pacific region as the Gemaco brand has a strong market presence in the Asia-Pacific
layout business. This acquisition was accounted for using the acquisition method required by ASC Topic 805, Business Combinations.
As a result, the gaming assets and liabilities of GemGroup are recorded as of the completion of the acquisition, at their respective
estimated fair values, and consolidated with our assets and liabilities. The results of the Acquired Business have been consolidated
with the Company beginning on the date of the acquisition (July 1, 2014).
As of September 30, 2014, $0.3 million of
acquisition related expenses were incurred.
The following table describes the acquisition
consideration paid, or estimated to be paid (dollars in thousands):
Cash | |
$ | 19,750 | |
Purchase agreement contingencies | |
| 249 | |
Total preliminary estimated acquisition consideration | |
$ | 19,999 | |
The purchase agreement contingencies
represent our best estimate, as of the release of this Form 10-Q, of the closing working capital adjustment.
The estimated acquisition consideration
has been preliminarily assigned based on estimates of the fair values of assets and liabilities acquired as of the acquisition
date. The assignment of the preliminary estimated acquisition consideration is based on estimates, assumptions, valuations and
other studies which have not yet been finalized. The final amounts allocated to assets acquired and liabilities assumed could differ
materially from the amounts presented in the unaudited pro forma condensed consolidated combined financial statements. The
final determination is subject to the completion of the valuation of the assets acquired and liabilities assumed, expected during
the fourth quarter of 2014.
The
assignment of the preliminary estimated acquisition consideration is as follows (dollars in thousands):
Accounts receivable | |
$ | 2,317 | |
Inventories | |
| 1,961 | |
Prepaid Expenses | |
| 70 | |
Other current assets | |
| 40 | |
Property and Equipment | |
| 5,126 | |
Intangible assets | |
| 2,004 | |
Goodwill | |
| 10,275 | |
Accounts payable | |
| (1,126 | ) |
Accrued liabilities | |
| (617 | ) |
Other liabilities | |
| (51 | ) |
Total preliminary estimated acquisition consideration | |
$ | 19,999 | |
The fair value
of the significant identified intangible assets was estimated using the market approach and income approach. Inputs used in the
methodologies primarily included projected future cash flows, discounted at a rate commensurate with the risk involved. The total
amount of intangible assets acquired subject to amortization expense is $2.0 million, with a residual value estimated to be zero
and weighted-average amortization period of 15 years, subject to final determination. Goodwill arising from the acquisition
is mainly attributable to synergies and improved market position.
The
company’s consolidated net revenues for the quarter ended September 30, 2014, included $5.6 million attributable to
the Acquired Business since the acquisition. Due to continued integration of the combined businesses since the day of
acquisition, it is impracticable to determine the earnings or loss contributed by the acquisition.
The following
unaudited pro forma consolidated results of operations for the three months ended September 30, 2013, and for the nine months ended
September 30, 2014 and 2013 have been prepared as if the acquisition of the gaming assets of GemGroup had occurred at January 1,
2013 (unaudited; in thousands, except per share data):
| |
Total | |
| |
Three Months Ended | | |
Nine Months Ended | |
| |
September 30, | | |
September 30, | |
| |
2013 | | |
2014 | | |
2013 | |
Net revenues | |
$ | 19,391 | | |
$ | 53,408 | | |
$ | 59,942 | |
| |
| | | |
| | | |
| | |
Net income attributable to common stockholders | |
$ | 568 | | |
$ | 1,375 | | |
$ | 1,935 | |
| |
| | | |
| | | |
| | |
Earnings per share—Basic | |
$ | 0.07 | | |
$ | 0.17 | | |
$ | 0.24 | |
| |
| | | |
| | | |
| | |
Earnings per share—Diluted | |
$ | 0.07 | | |
$ | 0.17 | | |
$ | 0.24 | |
The
unaudited pro forma consolidated results of operations do not purport to be indicative of the results that would have been obtained
if the above acquisition had actually occurred as of the dates indicated or of those results that may be obtained in the future.
The unaudited pro forma consolidated results of operations do not include the final adjustments to net income to give the final
effects to depreciation of property, plant and equipment acquired and amortization of intangible assets acquired as the Company
currently is working to complete its valuation of the assets and liabilities acquired and is unable to determine those final effects.
Upon completion of the valuation, the Company intends to make adjustments for these items in future pro forma disclosures. These
unaudited pro forma consolidated results of operations were derived, in part, from the historical financial statements of GemGroup
and other available information and assumptions believed to be reasonable under the circumstances.
Note 3. Cash, Cash Equivalents,
and Marketable Securities
We hold our
cash, cash equivalents, and marketable securities in financial institutions in various countries throughout the world. Substantially
all accounts have balances in excess of government-insured limits. The following summarizes the geographic location of our holdings
(in thousands):
| |
September 30, 2014 | | |
December 31, 2013 | |
| |
Cash and
Cash Equivalents | | |
Marketable
Securities | | |
Total | | |
Cash and
Cash Equivalents | | |
Marketable
Securities | | |
Total | |
| |
| | |
| | |
| | |
| | |
| | |
| |
Macau S.A.R., China | |
$ | 5,324 | | |
$ | - | | |
$ | 5,324 | | |
$ | 3,096 | | |
$ | - | | |
$ | 3,096 | |
United States | |
| 3,369 | | |
| - | | |
| 3,369 | | |
| 11,052 | | |
| - | | |
| 11,052 | |
France | |
| 1,052 | | |
| 1,597 | | |
| 2,649 | | |
| 344 | | |
| 5,724 | | |
| 6,068 | |
Total | |
$ | 9,745 | | |
$ | 1,597 | | |
$ | 11,342 | | |
$ | 14,492 | | |
$ | 5,724 | | |
$ | 20,216 | |
Available-for-sale
marketable securities consist of investments in securities such as certificates of deposit offered by French banks and bond mutual
funds (in thousands):
| |
September 30, 2014 | | |
December 31, 2013 | |
| |
Cost | | |
Unrealized
Gain/(Loss) | | |
Fair
Value | | |
Cost | | |
Unrealized
Gain/(Loss) | | |
Fair
Value | |
| |
| | |
| | |
| | |
| | |
| | |
| |
Certificates of deposit | |
$ | 1,269 | | |
$ | - | | |
$ | 1,269 | | |
$ | 4,680 | | |
$ | - | | |
$ | 4,680 | |
Bond mutual funds | |
| 328 | | |
| - | | |
| 328 | | |
| 1,044 | | |
| - | | |
| 1,044 | |
Total marketable securities | |
$ | 1,597 | | |
$ | - | | |
$ | 1,597 | | |
$ | 5,724 | | |
$ | - | | |
$ | 5,724 | |
We present our
marketable securities at their estimated fair value. Fair value is the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at the measurement date. We have determined
that all of our marketable securities are Level 1 financial instruments, with asset values recorded at quoted prices in active
markets for identical assets.
Note 4. Accounts Receivable
and Allowance for Doubtful Accounts
At September 30, 2014, one casino customer accounted for 35% of our accounts receivable balance. In October
2014, this client paid the majority of the outstanding balance. At December 31, 2013, we had one casino customer that accounted
for 10% of our accounts receivable balance.
The allowance
for doubtful accounts consists of the following (in thousands):
| |
Balance at
Beginning
of Year | |
|
Provision
(Benefit) | | |
Write-offs,
Net of Recoveries | | |
Exchange
Rate Effect | | |
Balance at
End of Period | |
September 30, 2014 | |
$ | 114 | |
|
$ | 100 | | |
$ | - | | |
$ | (2 | ) | |
$ | 212 | |
December 31, 2013 | |
$ | 152 | |
|
$ | (39 | ) | |
$ | - | | |
$ | 1 | | |
$ | 114 | |
Note 5. Inventories
Inventories
consist of the following (in thousands):
| |
September 30, 2014 | | |
December 31, 2013 | |
Raw materials | |
$ | 6,123 | | |
$ | 4,957 | |
Work in progress | |
| 2,354 | | |
| 937 | |
Finished goods | |
| 2,696 | | |
| 1,688 | |
Total inventories | |
$ | 11,173 | | |
$ | 7,582 | |
We classified
a portion of our inventories as non-current because we do not expect this portion to be used within one year. The classification
of our inventories on our condensed consolidated balance sheets is as follows (in thousands):
| |
September 30, 2014 | | |
December 31, 2013 | |
Current | |
$ | 10,730 | | |
$ | 7,407 | |
Non-current | |
| 443 | | |
| 175 | |
Total inventories | |
$ | 11,173 | | |
$ | 7,582 | |
Note 6. Property and Equipment
Property and
equipment consists of the following (in thousands):
| |
September 30, 2014 | | |
December 31, 2013 | |
Land | |
$ | 1,796 | | |
$ | 1,792 | |
Buildings and improvements | |
| 10,072 | | |
| 8,897 | |
Equipment and furniture | |
| 24,918 | | |
| 21,801 | |
Vehicles | |
| 474 | | |
| 475 | |
| |
| 37,260 | | |
| 32,965 | |
Less accumulated depreciation | |
| (22,800 | ) | |
| (21,969 | ) |
Property and equipment, net | |
$ | 14,460 | | |
$ | 10,996 | |
Depreciation expense for the three months
ended September 30, 2014 and 2013 was $751,000 and $574,000, respectively. Depreciation expense for the nine months ended September
30, 2014 and 2013 was $1,861,000 and $1,704,000 respectively.
Note 7. Goodwill and Intangible Assets
Intangible assets consist of the following (in thousands):
| |
September 30, 2014 | | |
December 31, 2013 | | |
| |
| |
Gross
Carrying Amount | | |
Accum.
Amort. | | |
Net
Carrying Amount | | |
Gross
Carrying Amount | | |
Accum.
Amort. | | |
Net
Carrying Amount | | |
Estimated
Useful Life (Years) | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Trademarks | |
$ | 1,742 | | |
$ | (296 | ) | |
$ | 1,446 | | |
$ | 631 | | |
$ | (240 | ) | |
| 391 | | |
| 10-15 | |
Patents | |
| 542 | | |
| (494 | ) | |
| 48 | | |
| 517 | | |
| (480 | ) | |
| 37 | | |
| 13-14 | |
Customer list | |
| 1,298 | | |
| (81 | ) | |
| 1,217 | | |
| 513 | | |
| (30 | ) | |
| 483 | | |
| 10-15 | |
Other intangible assets | |
| 208 | | |
| (46 | ) | |
| 162 | | |
| 103 | | |
| (29 | ) | |
| 74 | | |
| 3-10 | |
Total intangible assets | |
$ | 3,790 | | |
$ | (917 | ) | |
$ | 2,873 | | |
$ | 1,764 | | |
$ | (779 | ) | |
$ | 985 | | |
| | |
On July 1st, 2014, GPI
acquired the gaming assets of GemGroup (see Note 2 – Acquisition). As of September 30, 2014 and based
on the preliminary purchase price allocation, we acquired $10.3 million of goodwill and $2.0 million of intangible assets, including
a trademark, a customer list and a non-compete agreement
Amortization expense for intangible assets for the three months
ended September 30, 2014 and 2013 was $79,000 and $42,000, respectively. Amortization expense for intangible assets for the nine
months ended September 30, 2014 and 2013 was $140,000 and $105,000, respectively.
Note 8. Debt
On June 26,
2014, GPI USA and HSBC Bank USA entered into a demand line of credit agreement with a limit of $10.0 million. Interest on the
line of credit is LIBOR plus 2.25%. GPI USA borrowed $10.0 million under the line of credit to finance the acquisition of GemGroup
(see Note 2 – Acquisition). The line of credit is secured by a lien on all of the assets of GPI USA. The line of
credit is guaranteed by GPIC and is subject to renewal by HSBC Bank USA in its sole discretion on June 30th of each
year.
Note 9. Commitments and Contingencies
Legal Proceedings and Contingencies
We are engaged
in disputes and claims that arose in the normal course of business. We believe the ultimate outcome of these proceedings will
not have a material adverse impact on our consolidated financial position or results of operations. Liabilities for material claims
against us are accrued when a loss is considered probable and can be reasonably estimated. Legal costs associated with claims
are expensed as incurred.
On March 21,
2014, Walker Digital Table Systems (WDTS) and PJM Gaming (PJM) informed the Company that International Game Technology (IGT) was
in breach of an agreement under which the Company was granted a distribution license relating to RFID technology. Concurrently,
WDTS and PJM filed suit against the Company in U.S. District Court for patent infringement of four patents licensed to IGT by
the agreement. On July 8, 2014, the dispute was resolved and the suit against the Company was dismissed, with prejudice. The Company,
WDTS and PJM, and IGT each entered into separate license agreements with the other two parties. Under our agreement with IGT,
we acquired the two patents pursuant to which we had an exclusive license from IGT to manufacture and distribute RFID casino currency,
readers and systems in the United States.
Commitments
On March 13,
2014, we entered into a binding letter of intent to acquire substantially all of the net gaming assets of GemGroup for $22.5 million.
In accordance with the letter of intent, we deposited $1.0 million with an escrow agent. The purchase price was subsequently adjusted
to $19.75 million pursuant to an amended binding letter of intent dated May 20, 2014. On July 1, 2014, we completed the acquisition
of GemGroup for $19.75 million, subject to certain post-closing working capital adjustments. We financed the acquisition using
a combination of cash and bank financing (see Note 2 – Acquisition).
As of September
30, 2014, we had exclusive rights to two patents (licensed from IGT) related to RFID for use in casino currencies, as well as
any gaming table tracking system and method. The patents expire in 2015 and cumulative minimum payments for these rights were
$125,000. On July 8, 2014, we acquired the two patents for $25,000. These patents allow us to market, sell, manufacture and distribute
RFID casino currency, readers and systems in the US.
Note 10. Accumulated Other
Comprehensive Income
Changes in accumulated
other comprehensive income for the three months ended September 30, 2014, were as follows (in thousands):
| |
Foreign
Currency Translation | | |
Unrealized
Gains on Securities | | |
Total | |
Balance at June 30, 2014 | |
$ | 1,525 | | |
$ | 1 | | |
$ | 1,526 | |
Other comprehensive income | |
| (1,144 | ) | |
| - | | |
| (1,144 | ) |
Balance at September 30, 2014 | |
$ | 381 | | |
$ | 1 | | |
$ | 382 | |
Changes in accumulated
other comprehensive income for the nine months ended September 30, 2014, were as follows (in thousands):
| |
Foreign
Currency Translation | | |
Unrealized
Gains on Securities | | |
Total | |
Balance at January 1, 2014 | |
$ | 1,676 | | |
$ | 1 | | |
$ | 1,677 | |
Other comprehensive loss | |
| (1,295 | ) | |
| - | | |
| (1,295 | ) |
Balance at September 30, 2014 | |
$ | 381 | | |
$ | 1 | | |
$ | 382 | |
Note 11. Geographic and
Product Line Information
We manufacture
and sell casino table game equipment in one operating segment - casino table game products. Although the Company derives its revenues
from a number of different product lines, the Company neither allocates resources based on the operating results from the individual
product lines, nor manages each individual product line as a separate business unit. Our chief operating decision maker is our
Chief Executive Officer (CEO). He manages our operations on a consolidated basis and assesses overall corporate profitability
in making decisions about corporate resource allocation. Our CEO is also the chief operating manager for each of our entities
in the United States, France and Macau; that is, the individual locations do not have “segment” or “product
line” managers who report to our CEO.
The following
tables present our net sales by geographic area (in thousands):
| |
Three Months Ended | |
| |
September 30, | |
| |
2014 | | |
2013 | |
Revenues: | |
| | | |
| | | |
| | | |
| | |
The Americas | |
$ | 12,323 | | |
| 60.9 | % | |
$ | 8,173 | | |
| 60.4 | % |
Asia Pacific | |
| 6,909 | | |
| 34.1 | % | |
| 4,414 | | |
| 32.7 | % |
Europe and Africa | |
| 1,021 | | |
| 5.0 | % | |
| 932 | | |
| 6.9 | % |
Total | |
$ | 20,253 | | |
| 100.0 | % | |
$ | 13,519 | | |
| 100.0 | % |
| |
Nine Months Ended | |
| |
September 30, | |
| |
2014 | | |
2013 | |
Revenues: | |
| | | |
| | | |
| | | |
| | |
The Americas | |
$ | 24,553 | | |
| 59.8 | % | |
$ | 23,922 | | |
| 56.4 | % |
Asia Pacific | |
| 14,399 | | |
| 35.1 | % | |
| 16,119 | | |
| 38.0 | % |
Europe and Africa | |
| 2,076 | | |
| 5.1 | % | |
| 2,392 | | |
| 5.6 | % |
Total | |
$ | 41,028 | | |
| 100.0 | % | |
$ | 42,433 | | |
| 100.0 | % |
The following
tables present our net sales by product line (in thousands):
| |
Three Months Ended | |
| |
September 30, | |
| |
2014 | | |
2013 | |
| |
| | |
| | |
| | |
| |
Casino currency without RFID | |
$ | 5,006 | | |
| 24.8 | % | |
$ | 4,402 | | |
| 32.6 | % |
Casino currency with RFID | |
| 4,636 | | |
| 22.9 | % | |
| 2,590 | | |
| 19.2 | % |
| |
| | | |
| | | |
| | | |
| | |
Total casino currency | |
| 9,642 | | |
| 47.7 | % | |
| 6,992 | | |
| 51.8 | % |
| |
| | | |
| | | |
| | | |
| | |
Playing cards | |
| 6,281 | | |
| 31.0 | % | |
| 1,803 | | |
| 13.3 | % |
Table layouts | |
| 1,790 | | |
| 8.8 | % | |
| 991 | | |
| 7.3 | % |
Table accessories and other products | |
| 672 | | |
| 3.3 | % | |
| 1,129 | | |
| 8.3 | % |
Dice | |
| 609 | | |
| 3.0 | % | |
| 576 | | |
| 4.3 | % |
Gaming furniture | |
| 223 | | |
| 1.1 | % | |
| 871 | | |
| 6.4 | % |
RFID solutions | |
| 180 | | |
| 0.9 | % | |
| 674 | | |
| 5.0 | % |
Shipping | |
| 856 | | |
| 4.2 | % | |
| 483 | | |
| 3.6 | % |
Total | |
$ | 20,253 | | |
| 100.0 | % | |
$ | 13,519 | | |
| 100.0 | % |
| |
Nine Months Ended | |
| |
September
30, | |
| |
2014 | | |
2013 | |
| |
| | |
| | |
| | |
| |
Casino currency without RFID | |
$ | 11,270 | | |
| 27.5 | % | |
$ | 13,798 | | |
| 32.5 | % |
Casino currency with RFID | |
| 9,297 | | |
| 22.7 | % | |
| 10,939 | | |
| 25.8 | % |
| |
| | | |
| | | |
| | | |
| | |
Total casino currency | |
| 20,567 | | |
| 50.2 | % | |
| 24,737 | | |
| 58.3 | % |
| |
| | | |
| | | |
| | | |
| | |
Playing cards | |
| 9,468 | | |
| 23.0 | % | |
| 4,827 | | |
| 11.4 | % |
Table layouts | |
| 3,651 | | |
| 8.9 | % | |
| 3,200 | | |
| 7.5 | % |
Table accessories and other products | |
| 2,310 | | |
| 5.6 | % | |
| 2,845 | | |
| 6.7 | % |
Dice | |
| 1,774 | | |
| 4.3 | % | |
| 1,812 | | |
| 4.3 | % |
Gaming furniture | |
| 1,056 | | |
| 2.6 | % | |
| 2,082 | | |
| 4.9 | % |
RFID solutions | |
| 556 | | |
| 1.4 | % | |
| 1,578 | | |
| 3.7 | % |
Shipping | |
| 1,646 | | |
| 4.0 | % | |
| 1,352 | | |
| 3.2 | % |
Total | |
$ | 41,028 | | |
| 100.0 | % | |
$ | 42,433 | | |
| 100.0 | % |
For the nine months ended September 30,
2014, one casino customer accounted for 10% of revenues and in the nine months ended September 30, 2013, one casino customer accounted
for 10% of total revenues.
The following table presents our property and equipment
by geographic area (in thousands):
| |
September 30, 2014 | | |
December 31, 2013 | |
Property and equipment, net: | |
| | | |
| | |
United States | |
$ | 7,759 | | |
$ | 2,987 | |
France | |
| 3,755 | | |
| 4,502 | |
Mexico | |
| 2,791 | | |
| 3,360 | |
Asia | |
| 155 | | |
| 147 | |
Total | |
$ | 14,460 | | |
$ | 10,996 | |
The following table presents our intangible assets
by geographic area (in thousands):
| |
September 30, 2014 | | |
December 31, 2013 | |
Intangible assets, net: | |
| | | |
| | |
United States | |
$ | 2,316 | | |
$ | 964 | |
Asia | |
| 544 | | |
| - | |
France | |
| 13 | | |
| 21 | |
Total | |
$ | 2,873 | | |
$ | 985 | |
Note 12. Stockholders’
Equity
On December
1, 2011, our Board of Directors approved a stock repurchase program which authorized the repurchase of up to 5%, or 409,951 shares,
of common stock. On November 30, 2012, the Board of Directors increased the number of shares available for repurchase to 498,512
shares. From the program’s inception through September 30, 2014, we repurchased an aggregate of 282,922 shares of our common
stock at a cost of $2,066,728, or a weighted-average price of $7.30 per share. As of September 30, 2014, 215,590 shares remain
authorized for repurchase.
During the quarter
ended September 30, 2014, no shares were repurchased. During the quarter ended September 30, 2013, we repurchased 15,869 shares
of our common stock under this program at a cost of $127,517, or a weighted-average price of $8.04 per share.
Repurchases
are subject to market conditions, share price, and other factors, as well as periodic review by the Board of Directors. Repurchases
have been and will be made in accordance with applicable securities laws in the open market, in privately-negotiated transactions,
and/or pursuant to Rule 10b5-1 for trading plans. To assist the implementation of the program, our Board of Directors adopted
a 10b5-1 Purchase Plan on December 3, 2012 (the “Plan”). As permitted by the Plan, on August 5, 2013, the Board of
Directors elected to terminate the Plan effective August 12, 2013. While the Plan has been terminated, the repurchase program
remains in effect. The repurchase program does not specify an expiration date and it may be suspended or discontinued at any time.
In addition to terminating the Plan, the Board of Directors imposed a minimum six month time period from the effective date of
termination of the Plan before the Company could make any additional repurchases under the repurchase program.
Note 13. Earnings per
Share (EPS)
Shares used
to compute basic and diluted earnings per share from operations are as follows:
| |
Three Months Ended | | |
Nine Months Ended | |
| |
September
30, | | |
September
30, | |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
Weighted-average number of common shares outstanding - basic | |
| 7,916 | | |
| 7,917 | | |
| 7,916 | | |
| 7,950 | |
Potential dilution from equity grants | |
| 99 | | |
| 84 | | |
| 100 | | |
| 83 | |
Weighted-average number of common shares outstanding - diluted | |
| 8,015 | | |
| 8,001 | | |
| 8,016 | | |
| 8,033 | |
Note 14. Subsequent events
On November 5, 2014,
we informed approximately 100 full-time employees that we would be relocating our Mexican based card production to our facility
in Blue Springs, Missouri. In the remainder of 2014, we expect to incur approximately $0.4 million of pre-tax, one time charges
in connection with the transition, most of which will be cash expenditures. These charges include primarily employee separation
costs as well as equipment and inventory impairment charges and travel and training costs. We expect the relocation to be completed
by the end of the first quarter of 2015. The relocation is expected to provide significant savings in the manufacturing of cards
and is in line with the Company's overall plan to streamline its operations and reduce its overhead and operating expenses.
ITEM 2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion is intended to
assist in the understanding of our results of operations and our present financial condition. The condensed consolidated financial
statements and the accompanying notes contain additional detailed information that should be referred to when reviewing this material.
When we cross-reference to a “Note” herein, we are referring to the notes in Part I, Item 1. of this Form 10-Q.
Statements in this discussion may be forward-looking. Such forward-looking statements involve risks and uncertainties that could
cause actual results to differ significantly from those expressed. See Item 1A, “Risk Factors,” of our Form 10-K
for the period ended December 31, 2013.
For a more extensive overview and information
on our products, as well as general information, see Item 1. “Business” of our Form 10-K for the period ended
December 31, 2013.
Overview of Our Business
We custom manufacture and supply casino
currency including low- and high-frequency radio frequency identification device (RFID) casino currency, RFID solutions for casino
currency (consisting of low- and high-frequency RFID casino currency readers, antennas, casino currency authentication software,
casino currency inventory software applications, and software maintenance services), table layouts, playing cards, dice, gaming
furniture, roulette wheels, table accessories, and other products that are used with casino table games such as blackjack, poker,
baccarat, craps, and roulette. GPIC sells its casino table game equipment under the brand names of Paulson®, Bourgogne et Grasset®
(BG®), Blue Chip (BC®) and Bud Jones®. On July 1, 2014, GPIC started manufacturing and selling playing cards
and table layouts under the recently acquired Gemaco® brand name (see Note 2 – Acquisition). GPIC is headquartered
in Las Vegas, Nevada, with offices in Beaune, France; Macau S.A.R., China; San Luis Rio Colorado, Mexico; Blue Springs, Missouri;
Atlantic City, New Jersey; and Gulfport, Mississippi. We sell our products to licensed casinos worldwide. We operate in one segment
and have three operating subsidiaries: GPI USA (including GPI Mexicana, our maquiladora manufacturing operation in Mexico and our
manufacturing operation in Blue Springs, Missouri), GPI SAS, and GPI Asia. Our subsidiaries have the following distribution
and product focus:
| • | GPI USA sells in the United States, Canada, the Caribbean, and Latin America. GPI USA sells our full product line, with most
of the products manufactured at our facility in San Luis Rio Colorado, Mexico and, since July 1, 2014, at our facility in Blue
Springs, Missouri. The remainder is either manufactured in France or purchased from United States vendors. We also warehouse inventory
in San Luis, Arizona and at our Las Vegas, Nevada headquarters, and have sales offices in Las Vegas; Atlantic City, New Jersey;
and Gulfport, Mississippi. |
| • | GPI SAS sells primarily in Europe and Africa out of its office in Beaune, France. GPI SAS predominantly sells casino currencies,
including both American-style, known as chips, and European-style, known as plaques and jetons. Most of the products sold by GPI
SAS are manufactured in France, with the remainder manufactured in Mexico. |
| • | GPI Asia, with an office in Macau S.A.R., China, is the exclusive distributor of GPI USA and GPI SAS products
in the Asia-Pacific region. GPI Asia primarily sells casino currencies, manufactured in France or in Mexico, as well as RFID product
solutions. Since July 1, 2014, GPI Asia also sells layouts manufactured in Macau. |
Historically, we have experienced significant
fluctuations in our quarterly operating results and expect such fluctuations to continue. These fluctuations primarily reflect
the opening of new casinos, the expansion of existing casinos, or large replacement orders for casino currency, our primary product
line, which typically represents approximately 60% of our revenues. The timing of these events is difficult to forecast and largely
beyond our ability to influence, and results in variability in our revenues and earnings. While we pursue most large projects years
in advance, both large and small sales opportunities arise with little prior notice. Our backlog, which reflects signed orders
to be delivered in 2014 (does not include orders generated from the Acquired Business), was as follows at September 30, 2014 and
September 30, 2013 (in millions):
| |
GPI Asia | | |
GPI USA | | |
GPI SAS | | |
Total | |
September 30, 2014 | |
$ | 5.7 | | |
$ | 3.7 | | |
$ | 0.4 | | |
$ | 9.8 | |
September 30, 2013 | |
$ | 2.3 | | |
$ | 3.1 | | |
$ | 1.2 | | |
$ | 6.6 | |
Outlook
We will not benefit from any major casino
opening in the remainder of 2014. However, we anticipate securing and delivering orders in both the Americas and the Asia Pacific
region in 2015.
Following our acquisition of GemGroup, we
have started consolidating our card production to Blue Springs, Missouri. In the remainder of 2014, we expect to incur approximately
$0.4 million of pre-tax, one time charges in connection with the transition but expect significant savings in the manufacturing
of cards, our major recurring revenue product line. This is in line with our overall plan to streamline our operations and to continue
reducing our operating expenses.
Financial and Operational Highlights
For the third quarter of 2014, our revenues
were $20.3 million, an increase of $6.8 million, or 49.8%, compared to revenues of $13.5 million for the same period of 2013. For
the third quarter of 2014, our net income was $2.8 million, compared to a net income of $0.1 million for the same period in
2013. The increase in our results for the three months ended September 30, 2014, was due to the additional income attributable
to the Acquired Business and the increase of currency sales in the Asia region.
For the first nine months of 2014, our revenues
were $41.0 million, a decrease of $1.4 million, or 3.3%, compared to revenues of $42.4 million for the same period of 2013. For
the first nine months of 2014, our net income was $0.5 million, compared to net income of $0.6 million for the same period of 2013.
The decrease in our results for the nine months ended September 30, 2014, was due to the overall decrease in currency sales and
the increase in income tax expense, offset by the additional income attributable to the Acquired Business.
GPI SAS uses the euro
as its functional currency. At September 30, 2014 and December 31, 2013, the US dollar to euro exchange rates were $1.27 and $1.38,
respectively, which represents a 7.9% stronger dollar compared to the euro. The average exchange rates for the nine months ended
September 30, 2014 and 2013 were $1.36 and $1.32, respectively, which represents a 3.0% weaker dollar compared to the euro.
GPI Mexicana uses the
US dollar as its functional currency. At September 30, 2014 and December 31, 2013, the Mexican peso to US dollar exchange rates
were 13.49 and 13.07, respectively, which represents a 3.2% stronger dollar compared to the peso. The average exchange rates for
the nine months ended September 30, 2014 and 2013 were 13.11 pesos and 12.68 pesos to the US dollar, respectively, which represents
a 3.4% stronger dollar compared to the Mexican peso.
GPI Asia uses the US dollar as its functional
currency. At September 30, 2014 and December 31, 2013, the Macanese pataca to US dollar exchange rates was 7.87. The average exchange
rates for the nine months ended September 30, 2014 and 2013 were 7.84 patacas to the US dollar.
Other Matters
On July 1, 2014, we acquired substantially
all of the gaming assets of GemGroup for $19.75 million, subject to post-closing working capital adjustments, using a combination
of cash and bank financing. GemGroup was a manufacturer of casino currency, cards and table layouts primarily sold under the Gemaco
brand. We acquired the gaming assets of GemGroup to increase our card and layout recurring revenue and expand our footprint in
the Asia market by manufacturing layouts in Macau. For additional information, see Note 2 – Acquisition.
On December 1, 2011, our Board
of Directors approved a stock repurchase program which authorized the repurchase of up to five percent, or 409,951 shares, of
common stock. On November 30, 2012, the Board of Directors increased the number of shares available for repurchase to 498,512
shares. As of September 30, 2014, we have repurchased 282,922 shares and 215,590 shares remain authorized for repurchase.
On August
5, 2013, our Board of Directors voted to terminate our 10b5-1 purchase plan effective August 12, 2013. While the 10b5-1 purchase
plan was terminated, the repurchase program remains in effect. However, there is no assurance that we will repurchase any additional
shares under the repurchase program. For more information regarding the repurchase program, see Note 12 – Stockholders’
Equity.
CRITICAL ACCOUNTING ESTIMATES
Financial statement preparation requires
management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosure
of contingent assets and liabilities. The accompanying condensed consolidated financial statements are prepared using the same
critical accounting estimates discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.
RESULTS OF OPERATIONS
The following tables summarize
selected items from our condensed consolidated statements of operations (in thousands) and as a percentage of revenues:
| |
Three Months
Ended | | |
| | |
| |
| |
September
30, | | |
Period-to-Period | |
| |
2014 | | |
2013 | | |
Change | |
Revenues | |
$ | 20,253 | | |
| 100.0 | % | |
$ | 13,519 | | |
| 100.0 | % | |
$ | 6,734 | | |
| 49.8 | % |
Cost of revenues | |
| 13,447 | | |
| 66.4 | % | |
| 9,095 | | |
| 67.3 | % | |
| 4,352 | | |
| 47.9 | % |
Gross profit | |
| 6,806 | | |
| 33.6 | % | |
| 4,424 | | |
| 32.7 | % | |
| 2,382 | | |
| 53.8 | % |
Selling, administrative, and
research and development | |
| 4,205 | | |
| 20.8 | % | |
| 4,399 | | |
| 32.5 | % | |
| (194 | ) | |
| (4.4 | )% |
Operating income | |
| 2,601 | | |
| 12.8 | % | |
| 25 | | |
| 0.2 | % | |
| 2,576 | | |
| 10,304.0 | % |
Other income and (expense),
net | |
| 127 | | |
| 0.6 | % | |
| (8 | ) | |
| (0.1 | )% | |
| 135 | | |
| (1,687.5 | )% |
Loss before income taxes | |
| 2,728 | | |
| 13.4 | % | |
| 17 | | |
| 0.1 | % | |
| 2,711 | | |
| 15,947.1 | % |
Income tax (benefit) | |
| (40 | ) | |
| (0.2 | )% | |
| (66 | ) | |
| (0.5 | )% | |
| 26 | | |
| (39.4 | )% |
Net
income | |
$ | 2,768 | | |
| 13.6 | % | |
$ | 83 | | |
| 0.6 | % | |
$ | 2,685 | | |
| 3,234.9 | % |
| |
Nine Months Ended | | |
| | |
| |
| |
September
30, | | |
Period-to-Period | |
| |
2014 | | |
2013 | | |
Change | |
Revenues | |
$ | 41,028 | | |
| 100.0 | % | |
$ | 42,433 | | |
| 100.0 | % | |
$ | (1,405 | ) | |
| (3.3 | )% |
Cost of revenues | |
| 28,710 | | |
| 70.0 | % | |
| 29,343 | | |
| 69.2 | % | |
| (633 | ) | |
| (2.2 | )% |
Gross profit | |
| 12,318 | | |
| 30.0 | % | |
| 13,090 | | |
| 30.8 | % | |
| (772 | ) | |
| (5.9 | )% |
Selling, administrative, and
research and development | |
| 11,815 | | |
| 28.8 | % | |
| 12,917 | | |
| 30.4 | % | |
| (1,102 | ) | |
| (8.5 | )% |
Operating income | |
| 503 | | |
| 1.2 | % | |
| 173 | | |
| 0.4 | % | |
| 330 | | |
| 190.8 | % |
Other income and (expense),
net | |
| 232 | | |
| 0.6 | % | |
| 30 | | |
| 0.1 | % | |
| 202 | | |
| 673.3 | % |
Income before income taxes | |
| 735 | | |
| 1.8 | % | |
| 203 | | |
| 0.5 | % | |
| 532 | | |
| 262.1 | % |
Income tax provision (benefit) | |
| 252 | | |
| 0.6 | % | |
| (359 | ) | |
| (0.8 | )% | |
| 611 | | |
| (170.2 | )% |
Net
income | |
$ | 483 | | |
| 1.2 | % | |
$ | 562 | | |
| 1.3 | % | |
$ | (79 | ) | |
| (14.1 | )% |
The following tables present
certain data by geographic area (in thousands) and as a percentage of revenues:
| |
Three Months Ended | | |
| | |
| |
| |
September
30, | | |
Period-to-Period | |
| |
2014 | | |
2013 | | |
Change | |
Revenues: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
The Americas | |
$ | 12,323 | | |
| 60.9 | % | |
$ | 8,173 | | |
| 60.4 | % | |
$ | 4,150 | | |
| 50.8 | % |
Asia Pacific | |
| 6,909 | | |
| 34.1 | % | |
| 4,414 | | |
| 32.7 | % | |
| 2,495 | | |
| 56.5 | % |
Europe and Africa | |
| 1,021 | | |
| 5.0 | % | |
| 932 | | |
| 6.9 | % | |
| 89 | | |
| 9.5 | % |
Total | |
$ | 20,253 | | |
| 100.0 | % | |
$ | 13,519 | | |
| 100.0 | % | |
$ | 6,734 | | |
| 49.8 | % |
| |
Nine Months Ended | | |
| | |
| |
| |
September
30, | | |
Period-to-Period | |
| |
2014 | | |
2013 | | |
Change | |
Revenues: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
The Americas | |
$ | 24,553 | | |
| 59.8 | % | |
$ | 23,922 | | |
| 56.4 | % | |
$ | 631 | | |
| 2.6 | % |
Asia Pacific | |
| 14,399 | | |
| 35.1 | % | |
| 16,119 | | |
| 38.0 | % | |
| (1,720 | ) | |
| (10.7 | )% |
Europe and Africa | |
| 2,076 | | |
| 5.1 | % | |
| 2,392 | | |
| 5.6 | % | |
| (316 | ) | |
| (13.2 | )% |
Total | |
$ | 41,028 | | |
| 100.0 | % | |
$ | 42,433 | | |
| 100.0 | % | |
$ | (1,405 | ) | |
| (3.3 | )% |
The following tables present our revenues
by product line (in thousands) and as a percentage of revenues:
| |
Three Months Ended | | |
| | |
| |
| |
September 30, | | |
Period-to-Period | |
| |
2014 | | |
2013 | | |
Change | |
| |
| | |
| | |
| | |
| | |
| | |
| |
Casino currency without RFID | |
$ | 5,006 | | |
| 24.8 | % | |
$ | 4,402 | | |
| 32.6 | % | |
$ | 604 | | |
| 13.7 | % |
Casino currency with RFID | |
| 4,636 | | |
| 22.9 | % | |
| 2,590 | | |
| 19.2 | % | |
| 2,046 | | |
| 79.0 | % |
Total casino currency | |
| 9,642 | | |
| 47.7 | % | |
| 6,992 | | |
| 51.8 | % | |
| 2,650 | | |
| 37.9 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Playing cards | |
| 6,281 | | |
| 31.0 | % | |
| 1,803 | | |
| 13.3 | % | |
| 4,478 | | |
| 248.4 | % |
Table layouts | |
| 1,790 | | |
| 8.8 | % | |
| 991 | | |
| 7.3 | % | |
| 799 | | |
| 80.6 | % |
Table accessories and other products | |
| 672 | | |
| 3.3 | % | |
| 1,129 | | |
| 8.3 | % | |
| (457 | ) | |
| (40.5 | )% |
Dice | |
| 609 | | |
| 3.0 | % | |
| 576 | | |
| 4.3 | % | |
| 33 | | |
| 5.7 | % |
Gaming furniture | |
| 223 | | |
| 1.1 | % | |
| 871 | | |
| 6.4 | % | |
| (648 | ) | |
| (74.4 | )% |
RFID solutions | |
| 180 | | |
| 0.9 | % | |
| 674 | | |
| 5.0 | % | |
| (494 | ) | |
| (73.3 | )% |
Shipping | |
| 856 | | |
| 4.2 | % | |
| 483 | | |
| 3.6 | % | |
| 373 | | |
| 77.2 | % |
Total | |
$ | 20,253 | | |
| 100.0 | % | |
$ | 13,519 | | |
| 100.0 | % | |
$ | 6,734 | | |
| 49.8 | % |
| |
Nine Months Ended | | |
| | |
| |
| |
September 30, | | |
Period-to-Period | |
| |
2014 | | |
2013 | | |
Change | |
| |
| | |
| | |
| | |
| | |
| | |
| |
Casino currency without RFID | |
$ | 11,270 | | |
| 27.5 | % | |
$ | 13,798 | | |
| 32.5 | % | |
$ | (2,528 | ) | |
| (18.3 | )% |
Casino currency with RFID | |
| 9,297 | | |
| 22.7 | % | |
| 10,939 | | |
| 25.8 | % | |
| (1,642 | ) | |
| (15.0 | )% |
Total casino currency | |
| 20,567 | | |
| 50.2 | % | |
| 24,737 | | |
| 58.3 | % | |
| (4,170 | ) | |
| (16.9 | )% |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Playing cards | |
| 9,468 | | |
| 23.0 | % | |
| 4,827 | | |
| 11.4 | % | |
| 4,641 | | |
| 96.1 | % |
Table layouts | |
| 3,651 | | |
| 8.9 | % | |
| 3,200 | | |
| 7.5 | % | |
| 451 | | |
| 14.1 | % |
Table accessories and other products | |
| 2,310 | | |
| 5.6 | % | |
| 2,845 | | |
| 6.7 | % | |
| (535 | ) | |
| (18.8 | )% |
Dice | |
| 1,774 | | |
| 4.3 | % | |
| 1,812 | | |
| 4.3 | % | |
| (38 | ) | |
| (2.1 | )% |
Gaming furniture | |
| 1,056 | | |
| 2.6 | % | |
| 2,082 | | |
| 4.9 | % | |
| (1,026 | ) | |
| (49.3 | )% |
RFID solutions | |
| 556 | | |
| 1.4 | % | |
| 1,578 | | |
| 3.7 | % | |
| (1,022 | ) | |
| (64.8 | )% |
Shipping | |
| 1,646 | | |
| 4.0 | % | |
| 1,352 | | |
| 3.2 | % | |
| 294 | | |
| 21.7 | % |
Total | |
$ | 41,028 | | |
| 100.0 | % | |
$ | 42,433 | | |
| 100.0 | % | |
$ | (1,405 | ) | |
| (3.3 | )% |
Comparison of Operations for the Three and Nine Months Ended
September 30, 2014 and 2013
Revenues. For
the three months ended September 30, 2014, our revenues were $20.3 million, an increase of $6.8 million, or 49.8%,
compared to revenues of $13.5 million during the same period in 2013. The increase was primarily attributable to the additional
revenues from the Acquired Business and the increase of currency sales in the Asia region.
For the nine months ended September
30, 2014, our revenues were $41.0 million, a decrease of $1.4 million, or 3.31%, compared to revenues of $42.4 million during the
same period in 2013. The decrease was primarily attributable to the lack of orders for casino openings/ expansions during the first
semester of 2014, offset by the additional revenues from the Acquired Business.
Cost of Revenues. For the
three months ended September 30, 2014, cost of revenues was $13.4 million, an increase of $4.3 million, or 47.9%,
compared to cost of revenues of $9.1 million for the same period in 2013. As a percentage of revenues, our cost of revenues decreased
to 66.4% in 2014 compared to 67.3% in 2013.
For the nine months ended September
30, 2014, cost of revenues was $28.7 million, a decrease of $0.7 million, or 2.2%, compared to cost of revenues of $29.3 million
for the same period in 2013. As a percentage of revenues, our cost of revenues increased to 70.0% in 2014 compared to 69.2% in
2013.
Gross Profit. For
the three months ended September 30, 2014, gross profit was $6.8 million, an increase of $2.4 million, or 53.8%,
compared to gross profit of $4.4 million for the same period in 2013. As a percentage of revenues, our gross profit increased from
32.7% to 33.6%. This is mainly due to an increase in sales of our currency products which caused fixed manufacturing costs to be
allocated over a greater revenue base.
For the nine months ended September
30, 2014, gross profit was $12.3 million, a decrease of $0.8 million, or 5.9%, compared to gross profit of $13.1 million for the
same period in 2013. As a percentage of revenues, our gross profit decreased from 30.8% to 30.0%. This is mainly due to a decrease
in sales of our currency products which caused fixed manufacturing costs to be allocated over a lower revenue base.
Selling, Administrative,
and Research and Development Expenses. The following tables present the selling, administrative, and research and development
expenses (in thousands) and as a percentage of revenues:
| |
Three Months Ended | | |
| | |
| |
| |
September 30, | | |
Period-to-Period | |
| |
2014 | | |
2013 | | |
Change | |
| |
| | |
| | |
| | |
| | |
| | |
| |
Marketing and sales | |
$ | 1,840 | | |
| 9.1 | % | |
$ | 1,683 | | |
| 12.4 | % | |
$ | 157 | | |
| 9.3 | % |
General and administrative | |
| 2,041 | | |
| 10.1 | % | |
| 2,249 | | |
| 16.7 | % | |
| (208 | ) | |
| (9.2 | )% |
Research and development | |
| 324 | | |
| 1.6 | % | |
| 467 | | |
| 3.5 | % | |
| (143 | ) | |
| (30.6 | % |
Total selling, administrative, | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
and research and development | |
$ | 4,205 | | |
| 20.8 | % | |
$ | 4,399 | | |
| 32.6 | % | |
$ | (194 | ) | |
| (4.4 | )% |
For the three
months ended September 30, 2014, selling, administrative, and research and development expenses were $4.2 million, a decrease of
$0.2 million, or 4.4%, compared to selling, administrative, and research and development expenses of $4.4 million during the same
period in 2013. Selling, administrative, and research and development expenses decreased as a percent of revenue to 20.8% in the
third quarter of 2014 from 32.6% in the same period in 2013.
Marketing and sales expenses
increased by $0.2 million during the third quarter of 2014, compared to the same period in 2013. This is primarily due to an increase
of $0.5 million in expenses associated with the Acquired Business (see Note2 – Acquisition), offset by a decrease
of $0.3 million in trade-show cost. The decrease in trade-show costs is mainly related to
the scheduling of the G2E Las Vegas trade-show. We will account for the cost of the trade-show in the fourth quarter of 2014 whereas
in 2013 it was accounted for in the third quarter.
General and administrative
expenses decreased by $0.2 million during the third quarter of 2014, compared to the same period in 2013. This is primarily due
to a decrease of $0.3 million in compensation expense and $0.2 million in legal, consulting and audit costs, offset by $0.4 million
in expenses associated with the Acquired Business (see Note2 – Acquisition).
Research and development expenses
decreased by $0.1 million during the third quarter of 2014, compared to the same period in 2013.
| |
Nine Months Ended | | |
| | |
| |
| |
September 30, | | |
Period-to-Period | |
| |
2014 | | |
2013 | | |
Change | |
| |
| | |
| | |
| | |
| | |
| | |
| |
Marketing and sales | |
$ | 4,486 | | |
| 10.9 | % | |
$ | 4,692 | | |
| 11.1 | % | |
$ | (206 | ) | |
| (4.4 | )% |
General and administrative | |
| 6,151 | | |
| 15.0 | % | |
| 6,730 | | |
| 15.9 | % | |
| (579 | ) | |
| (8.6 | )% |
Research and development | |
| 1,178 | | |
| 2.9 | % | |
| 1,495 | | |
| 3.5 | % | |
| (317 | ) | |
| (21.2 | % |
Total selling, administrative, | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
and research and development | |
$ | 11,815 | | |
| 28.8 | % | |
$ | 12,917 | | |
| 30.5 | % | |
$ | (1,102 | ) | |
| (8.5 | )% |
For the nine months ended September
30, 2014, selling, administrative, and research and development expenses were $11.8 million, a decrease of $1.1 million, or 8.5%,
compared to selling, administrative, and research and development expenses of $12.9 million during the same period in 2013. Selling,
administrative, and research and development expenses decreased as a percent of revenue to 28.8% in the first nine months of 2014
from 30.5% in the same period in 2013.
Marketing and sales expenses
decreased by $0.2 million during the first nine months of 2014, compared to the same period in 2013. This is primarily due to a
decrease of $0.3 million in trade-show, $0.2 million in sales development expenses related to our marketing and sales in Asia,
and $0.1 million in travel related costs, offset by $0.5 million in expenses associated with the Acquired Business (see Note2
– Acquisition).
General and administrative
expenses decreased by $0.6 million during the first nine months of 2014, compared to the same period in 2013. This is primarily
due to a decrease of $0.6 million in legal, consulting and audit costs, and $0.3 million in compensation expense, offset by $0.4
million in expenses associated with the Acquired Business (see Note2 – Acquisition).
Research and development expenses
decreased by $0.3 million during the first nine months of 2014, compared to the same period in 2013. This is primarily due to a
decrease of $0.2 million in compensation expense.
Other Income and
(Expense). The following tables present other income and (expense) items (in thousands) and as a percentage of revenues:
| |
Three Months Ended | | |
| | |
| |
| |
September 30, | | |
Period-to-Period | |
| |
2014 | | |
2013 | | |
Change | |
Gain (Loss) on foreign currency transactions | |
$ | 186 | | |
| 0.9 | % | |
$ | (61 | ) | |
| (0.6 | )% | |
$ | 247 | | |
| (404.9 | )% |
Interest income | |
| 3 | | |
| 0.0 | % | |
| 52 | | |
| 0.4 | % | |
| (49 | ) | |
| (94.2 | )% |
Other income | |
| 2 | | |
| 0.0 | % | |
| 5 | | |
| 0.0 | % | |
| (3 | ) | |
| (60.0 | )% |
Interest expense | |
| (64 | ) | |
| (0.3 | % | |
| (4 | ) | |
| 0.0 | % | |
| (60 | ) | |
| 1,500.0 | % |
Total other income and (expense) | |
$ | 127 | | |
| 0.6 | % | |
$ | (8 | ) | |
| (0.2 | )% | |
$ | 135 | | |
| (1,687.5 | )% |
| |
Nine Months Ended | | |
| | |
| |
| |
September 30, | | |
| | |
| |
| |
2014 | | |
2013 | | |
Period-to-Period Change | |
Gain (Loss) on foreign currency transactions | |
$ | 159 | | |
| 0.4 | % | |
$ | (152 | ) | |
| (0.5 | )% | |
$ | 311 | | |
| (204.6 | )% |
Interest income | |
| 130 | | |
| 0.3 | % | |
| 167 | | |
| 0.4 | % | |
| (37 | ) | |
| (22.2 | )% |
Other income | |
| 7 | | |
| 0.0 | % | |
| 23 | | |
| 0.1 | % | |
| (16 | ) | |
| (69.6 | )% |
Interest expense | |
| (64 | ) | |
| (0.2 | % | |
| (8 | ) | |
| 0.0 | % | |
| (56 | ) | |
| 700.0 | % |
Total other income and (expense) | |
$ | 232 | | |
| 0.5 | % | |
$ | 30 | | |
| 0.0 | % | |
$ | 202 | | |
| 673.3 | % |
Income Taxes. Our effective
income tax rate for the three months ended September 30, 2014 and 2013 was (1.5%) and (388.2%), respectively. Our effective tax
rate for the three months ended September 30, 2014 was favorably affected by a smaller increase in the valuation allowance related
to our foreign tax credit, compared to the prior quarter, as a result of the GemGroup acquisition.
Our effective income tax rate for the nine
months ended September 30, 2014 and 2013 was 34.6% and (176.8%), respectively. Our effective tax rate for the nine months ended
September 30, 2014 was unfavorably affected by an increase in the valuation allowance related to our foreign tax credits, partially
offset by a favorable impact from the foreign rate differential on income from our Macau subsidiary, GPI Asia, and the tax benefit
from a research credit from our French subsidiary, GPI SAS. Without the increase in the valuation allowance related to foreign
tax credits, our effective tax rate for the three and nine months ended September 30, 2014 would have been 8.1% and 5.5%, respectively.
We account for uncertain tax positions
in accordance with applicable accounting guidance. There were no unrecognized tax benefits reported at September 30, 2014 or December
31, 2013.
Liquidity and Capital Resources
Sources of Liquidity and Capital Resources.
Historically our primary source of liquidity and capital resources has been cash from operations. On June 26, 2014, GPI USA and
HSBC Bank USA entered into a demand line of credit agreement with a limit of $10.0 million. Interest on the line of credit is LIBOR
plus 2.25%. GPIC borrowed $10.0 million under the line of credit to finance the acquisition of GemGroup. The line of credit is
secured by a lien on all of the assets of GPI USA and is guaranteed by GPIC. The line of credit is subject to renewal by the bank
in its sole discretion on June 30 of each year. Other potential sources of liquidity and capital resources include, but are not
limited to, marketable securities and potential bank credit facilities, both in the United States and abroad. We believe that the
combination of these resources will satisfy our needs for working capital, capital expenditures, any purchases of common stock
under our stock repurchase program, litigation, potential dividends or acquisitions.
At September 30, 2014, we had $9.7 million
in cash and cash equivalents and $1.6 million in marketable securities, totaling $11.3 million. Of this amount, $5.3 million is
held by GPI ASIA, $3.4 million is held by GPI USA, and $2.6 million is held by GPI SAS. Of those amounts held outside the United
States, we would be subject to taxation if we were to repatriate those amounts, though foreign tax credits may be available to
offset such taxes. We may repatriate amounts from GPI SAS and, accordingly, our financial statements reflect the tax impacts that
would result from repatriation. We do not anticipate repatriation from GPI Asia and, accordingly, our financial statements do
not reflect the tax impacts that would result from repatriation.
Working
Capital (See Condensed Consolidated Balance Sheets). The following summarizes our cash and cash equivalents, marketable
securities, and working capital (all in thousands), and our current ratio:
| |
September 30, | | |
December 31, | | |
Period-to-Period | |
| |
2014 | | |
2013 | | |
Change | |
Cash and cash equivalents | |
$ | 9,745 | | |
$ | 14,492 | | |
$ | (4,747 | ) | |
| (32.8 | )% |
Marketable securities | |
| 1,597 | | |
| 5,724 | | |
| (4,127 | ) | |
| (72.1 | )% |
Working capital | |
| 15,129 | | |
| 32,069 | | |
| (16,940 | ) | |
| (52.8 | )% |
Current ratio | |
| 1.7 | | |
| 6.3 | | |
| | | |
| | |
At September 30, 2014, working capital
totaled $15.1 million, a decrease of $16.9 million, or 52.8%, compared
to working capital of $32.1 million at December 31, 2013. The change in working capital was due to an increase in current liabilities
of $15.2 million and a decrease in current assets of $1.7 million. These changes are mainly due to the purchase of the Acquired
Business (see Note 2 – Acquisition). The increase in current liabilities was due primarily to increases
in short term debt of $10.0 million, in accounts payable of $2.5 million, in customer deposits and deferred revenue of $1.5 million,
and in accrued liabilities of $1.2 million. The decrease in current assets was due primarily to decreases in cash and marketable
securities of $8.9 million and in other current assets of $0.6 million, offset by increases in accounts receivables of $4.7 million
and in inventories of $3.4 million.
Cash Flows (See Condensed Consolidated
Statements of Cash Flows). The following summarizes our cash flows (in thousands):
| |
Nine Months Ended | | |
| | |
| |
| |
September 30, | | |
Period-to-Period | |
| |
2014 | | |
2013 | | |
Change | |
| |
| | |
| | |
| | |
| |
Operating activities | |
$ | 1,931 | | |
$ | (4,922 | ) | |
| 6,853 | | |
| (139.2 | %) |
Investing activities | |
| (16,229 | ) | |
| 4,927 | | |
| (21,156 | ) | |
| (429.4 | %) |
Financing activities | |
| 10,000 | | |
| (1,013 | ) | |
| 11,013 | | |
| (1,087.2 | %) |
Effect of exchange rates | |
| (449 | ) | |
| (153 | ) | |
| (296 | ) | |
| 193.5 | % |
Net change | |
$ | (4,747 | ) | |
$ | (1,161 | ) | |
| (3,586 | ) | |
| 308.9 | % |
The increase in cash flows provided by operating activities
was primarily caused by an increase in liabilities of $7.6 million and an increase in non-cash items of $1.6 million, offset by
a decrease in assets of $2.3 million.
The decrease in cash flows provided by investing
activities was primarily due to an increase in purchase of business assets of $19.0 million (see Note 2 – Acquisition),
and a decrease in net proceeds from the sale of marketable securities of $3.3 million, offset by a decrease of capital expenditures
of $1.1 million during the nine months ended September 30, 2014, compared to the same period in 2013.
The increase in cash flows provided by financing
activities was due to the inflow of funds from the demand line of credit for $10.0 million (see Note 8 –Debt) and
the lack of common stock repurchases in the nine months ended September 30, 2014.
Capital
Expenditures. We plan to purchase approximately $1.8 million in property, plant, and equipment during the remainder
of 2014. In the first nine months of 2014, we purchased $0.4 million of property, plant, and equipment.
Cash
Dividend. Our Board of Directors has no current plans to pay a regular dividend on our common stock, but may evaluate
the merit of paying a dividend from time to time.
Backlog.
At September 30, 2014, our backlog, which reflects signed orders to be delivered in 2014 (does not include orders generated from
the Acquired Business), was $9.8 million, consisting of $5.7 million for GPI Asia, $3.7 million for GPI USA, and $0.4 million for
GPI SAS. At September 30, 2013, our backlog of signed orders for 2013 was $6.6 million, consisting of $2.3 million for GPI Asia,
$3.1 million for GPI USA, and $1.2 million for GPI SAS.
Contractual Obligations and Commercial Commitments
On June 26, 2014, GPIC and HSBC Bank USA
entered into a demand line of credit agreement with a limit of $10.0 million (see Note 8 –Debt).
Forward-Looking Information Statements and Risk Factors
Throughout this Form 10-Q, we make
some forward-looking statements which do not relate to historical or current facts, but are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to analyses and other information
based on forecasts of future results and estimates of amounts not yet determinable that, while considered reasonable by us, are
inherently subject to significant business, economic, and competitive risks and uncertainties, many of which are beyond our control
and are subject to change. The statements also relate to our future prospects and anticipated performance, development, and
business strategies such as statements relating to anticipated future sales or the timing thereof, costs and benefits of restructuring,
potential acquisitions and integrations, the long-term growth and prospects of our business or any jurisdiction, the duration or
effects of unfavorable economic conditions which may reduce our product sales, and the long-term potential of the RFID gaming chips
market and our ability to capitalize on any such growth opportunities. These statements are identified by their use of terms
and phrases such as anticipate, believe, could, would, estimate, expect, intend, may, plan, predict, project, pursue, will, continue,
feel, or the negative or other variations thereof, and other similar terms and phrases, including references to assumptions.
Although we believe that
the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from
those expressed or implied. Our future financial condition and results of operations, as well as any forward-looking statements,
are subject to change and to inherent known and unknown risks and uncertainties such as those identified in Part I-Item 1A,
“Risk Factors,” of our Form 10-K for the period ended December 31, 2013. We do not intend, and undertake
no obligation, to update our forward-looking statements to reflect future events or circumstances.
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Not required for a smaller reporting
company.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, including the Chief
Executive Officer and Interim Chief Financial Officer, has conducted an evaluation of the effectiveness of our disclosure
controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") as of September 30, 2014. Based upon this evaluation, our Chief Executive Officer
and our Interim Chief Financial Officer have concluded that, as of September 30, 2014, the end of the period covered by this
Form 10-Q, our disclosure controls and procedures were effective at a reasonable assurance level to ensure that
information required to be disclosed by us in the reports we file or submit under the Exchange Act is (i) recorded,
processed, summarized, and reported within the time periods specified in the SEC rules and forms, and (ii) is accumulated and
communicated to our management, including our Chief Executive Officer and Interim Chief Financial Officer as appropriate to
allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
Management has determined that there was
no change in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
during the quarter ended September 30, 2014, that materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL
PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
None, except as set forth in Item 1A,
“Risk Factors,” of our Form 10-K for the period ended December 31, 2013.
ITEM 2. UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
No common shares were repurchased by the
Company in the third quarter of 2014.
ITEM 3. DEFAULTS
UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY
DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM
6. EXHIBITS
10.1 |
Binding letter of intent, dated March 13, 2014, between Gaming Partners International Corporation and GemGroup, Inc. (incorporated by reference to Exhibit 10.0 to GPI's Quarterly Report on Form 10-Q (SEC File No. 0-23588) filed May 13, 2014) |
|
|
10.2 |
Asset Purchase Agreement, dated July 1, 2014, among Gaming Partners International Corporation and GemGroup Inc., Gemaco Inc, GemAsia LLC, GemTechc LLC, the shareholders of GemGroup Inc., and Danny R. Carpenter, as Agent (incorporated by reference to Exhibit 2.1 to GPI's Form 8-K (SEC File No. 0-23588) filed on July 7, 2014) |
|
|
10.3 |
Demand line of credit agreement, dated June 26, 2014, between Gaming Partners International USA,
Inc. and HSBC Bank USA, National Association; Demand Note, dated June 26, 2014, by Gaming Partners International USA, Inc.
payable to the order of HSBC Bank USA, National Association; Security Agreement, dated June 26, 2014, between Gaming Partners
International USA, Inc. and HSBC Bank USA, National Association; and Unlimited Guaranty, dated June 26, 2014 by Gaming
Partners International Corporation for the benefit of HSBC Bank USA, National Association (incorporated by reference to
Exhibit 10.1 to GPI's Form 8-K (SEC File No. 0-23588) filed on July 7, 2014) |
|
|
31.1 |
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
31.2 |
Certification of Chief Financial and Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
32.0 |
Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
101.INS |
XBRL Instance |
|
|
101.SCH |
XBRL Taxonomy Extension Schema |
|
|
101.CAL |
XBRL Taxonomy Extension Calculation |
|
|
101.DEF |
XBRL Taxonomy Extension Definition |
|
|
101.LAB |
XBRL Taxonomy Extension Labels |
|
|
101.PRE |
XBRL Taxonomy Extension Presentation |
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.
|
GAMING PARTNERS INTERNATIONAL CORPORATION |
|
|
Date: November 12, 2014 |
By: |
/s/ Gregory S. Gronau |
|
|
Gregory S. Gronau |
|
|
President and Chief Executive Officer, Treasurer and Secretary |
|
|
|
Date: November 12, 2014 |
By: |
/s/ Alain M. Thieffry |
|
|
Alain M. Thieffry |
|
|
Interim Chief Financial Officer |
EXHIBIT 31.1
CERTIFICATION OF
PRINCIPAL EXECUTIVE OFFICER
Section 302 Certification
I, Gregory S. Gronau, certify that:
1. I
have reviewed this report on Form 10-Q of Gaming Partners International Corporation;
2. Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based
on my knowledge, the financial statements and other financial information included in this report fairly present, in all material
respects, the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented
in this report;
4. The
registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
b) Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
d) Disclosed
in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The
registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a) All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial data
information; and
b) Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: November 12, 2014 |
By: |
/s/ Gregory S. Gronau |
|
|
Gregory S. Gronau |
|
|
President and Chief Executive Officer, Treasurer and Secretary |
EXHIBIT 31.2
CERTIFICATION OF
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER
Section 302 Certification
I, Alain M. Thieffry, certify that:
1. I
have reviewed this report on Form 10-Q of Gaming Partners International Corporation;
2. Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based
on my knowledge, the financial statements and other financial information included in this report fairly present, in all material
respects, the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented
in this report;
4. The
registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
b) Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
d) Disclosed
in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The
registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a) All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial data
information; and
b) Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: November 12, 2014 |
By: |
/s/ Alain M. Thieffry |
|
|
Alain M. Thieffry |
|
|
Interim Chief Financial Officer |
Exhibit 32.0
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
In connection with the Quarterly Report
on Form 10-Q of Gaming Partners International Corporation (the Company), for the quarter ended September 30, 2014, as filed
with the Securities and Exchange Commission (SEC) on the date hereof (the Report), Gregory S. Gronau, as Chief Executive Officer,
Treasurer and Secretary, and Alain M. Thieffry, as Interim Chief Financial Officer of the Company, each hereby certifies,
pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the
best of his knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934 (15 U.S.C. § 78m(a) or 78o(d));
and |
| 2. | The information contained in the Report fairly presents, in
all material respects, the financial condition and results of operations of the Company. |
|
GAMING PARTNERS INTERNATIONAL CORPORATION |
|
|
|
Date: November 12, 2014 |
By: |
/s/ Gregory S. Gronau |
|
|
Gregory S. Gronau |
|
|
President and Chief Executive Officer, Treasurer and Secretary |
|
|
|
Date: November 12, 2014 |
By: |
/s/ Alain M. Thieffry |
|
|
Alain M. Thieffry |
|
|
Interim Chief Financial Officer |
This certification is being furnished to
the SEC as an exhibit to the Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the
extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of § 18 of the Securities
Exchange Act of 1934, as amended.
A signed copy of this written statement
required by Section 906 has been provided by the Company and will be retained by the Company and furnished to the SEC or
its staff upon request.
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