NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting
Policies
Organization and Nature of Business
Gaming Partners International Corporation
(GPIC or the Company) is headquartered in North Las Vegas, Nevada. Our business activities include the manufacture and sale of
casino currencies, playing cards, table accessories, table layouts, dice, gaming furniture, roulette wheels, and RFID readers
and software, all of which are used with casino table games such as blackjack, poker, baccarat, craps, and roulette.
We have 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, and GPI USA Blue Springs, our manufacturing facility in Missouri); Gaming Partners International SAS (GPI
SAS); and Gaming Partners International Asia Limited (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
in either San Luis Rio Colorado, Mexico, or Blue Springs, Missouri. The remainder is
either manufactured in France or purchased from United States vendors. We warehouse inventory
in San Luis, Arizona; Blue Springs, Missouri; and North Las Vegas, Nevada. We have sales
offices in North Las Vegas, Nevada; Atlantic City, New Jersey; Gulfport, Mississippi;
and Blue Springs, Missouri.
|
|
•
|
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, located in Macau S.A.R., China, distributes our
full product line in the Asia-Pacific region. GPI Asia also sells table layouts that
it manufactures in Macau S.A.R.
|
We are one of the gaming industry’s
leading manufacturers and suppliers of casino table game equipment. We custom manufacture and supply casino currencies, playing
cards, table layouts, 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. Our products fall into two categories
– non-consumable and consumable. Non-consumable products consist of casino currencies, gaming furniture, and RFID solutions.
These products typically have a useful life of several years or longer. Sales of non-consumables are typically driven by casino
openings, expansions, and rebrandings, as well as replacements in the normal course of business. Consumable products consist of
playing cards, table accessories, table layouts, and dice. These products each have a useful life that ranges from several hours
for playing cards and dice to several months for layouts. Casinos tend to buy these products annually if not more frequently.
Significant Accounting Policies
Basis of Consolidation and Presentation.
The
consolidated financial statements include the accounts of GPIC and its wholly-owned subsidiaries GPI USA, GPI SAS, GPI
Asia, and GPI Mexicana. All material intercompany balances and transactions have been eliminated in consolidation. The consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States.
Cash and Cash Equivalents.
We consider all highly-liquid
investments with original maturities of three months or less to be cash and cash equivalents. We maintain cash and cash equivalents
in various United States banks. Several accounts are in excess of the federally-insured limit of $250,000. We also maintain cash
and cash equivalents in foreign banks that are not insured.
Fair Value of Financial Instruments
.
The fair
value of cash and cash equivalents, marketable securities, accounts receivable, accounts payable and current portion of long-term
debt approximates the carrying amount of these financial instruments due to their short-term nature. The carrying values of the
Company's long-term debt instruments are considered to approximate their fair values because the interest rates of these instruments
are variable or comparable to current rates available to the Company.
Marketable Securities
.
We account for our investments
in marketable securities as available-for-sale and, as such, they are recorded on our consolidated balance sheets at estimated
fair value. Unrealized holding gains and losses are excluded from earnings and are, instead, reported within accumulated other
comprehensive loss.
Accounts Receivables and Customer Deposits.
We
perform ongoing credit evaluations of our customers and for casino currency and most significant orders, such as those orders
for casino openings, generally require a deposit prior to commencing work on a customer order. These customer deposits are classified
as a current liability on the consolidated balance sheets. We also maintain an allowance for doubtful accounts to state trade
receivables at their estimated realizable value. This allowance applies to all customers and is estimated based on a variety of
factors, including the length of time the receivables are past due, economic conditions and trends, significant one-time events,
and historical experience. Changes are made to the allowance based on our awareness of a particular customer’s ability to
meet its financial obligations. Receivables are written-off when management determines that collectability is remote.
Inventories.
Inventories are stated at the lower
of cost or market value. Cost is determined using a weighted-average method for GPI SAS and a first-in, first-out method
for GPI USA and GPI Asia. Market value is determined by comparing inventory item carrying values to estimates of net realizable
value. The analysis of net realizable value includes reviewing overall inventory levels, historical and projected sales, or usage
of these items, the projected markets for our products, and selling costs. Inventories that we estimate will not be used within
one year is considered non-current inventory.
Property and Equipment
.
Property and equipment
are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method for financial reporting
purposes over the following estimated useful lives:
|
Years
|
Buildings and Improvements
|
3 - 40
|
Equipment and Furniture
|
2 - 15
|
Vehicles
|
5 - 7
|
Goodwill.
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. We test goodwill for impairment
using qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than
its carrying amount, including goodwill. If it is not more likely than not that the fair value of the reporting unit is less than
its carrying amount, no further testing is performed. If it is more likely than not that the fair value of the reporting unit
is less than its carrying amount, we perform a quantitative two-step impairment test. The first step compares the fair value of
the reporting unit with its carrying amount, including goodwill. If the carrying amount exceeds fair value, then the second step
is used to measure the amount of impairment loss.
Long-Lived and Intangible Assets.
We evaluate
the carrying value of long-lived assets (including property and equipment and intangible assets) for possible impairment when
events or change in circumstances indicate that the carrying value of an asset may not be recoverable. In general, we will identify
a potential impairment loss when the sum of undiscounted expected cash flows from the asset is less than the carrying amount of
such asset. We record an impairment loss when the carrying amount of the intangible asset is not recoverable and the carrying
amount exceeds the estimated fair value. Intangible assets, such as patents and trademarks, are amortized using the straight-line
method over their economic lives.
Revenue Recognition
.
For casino table game product
sales, we record revenue, net of excise and sales taxes, when it is realized, or realizable, and earned. We consider these criteria
met when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the sales price is
fixed or determinable, collectability is reasonably assured and, if required, acceptance is received from the customer. Shipping
costs billed to our customers are reflected in revenues, with the related expense included in cost of revenues. Sales tax collected
from customers is excluded from revenue and included in accrued expenses.
We occasionally enter into multiple-element
arrangements with our customers to provide RFID solutions. Such transactions may include deliverables such as RFID equipment,
installation and training services, embedded RFID software licenses, and limited software support services. In such arrangements,
RFID equipment and embedded RFID software work together to deliver the functionality purchased by our customer. Therefore,
we apply the provisions of multiple-element accounting to separate the deliverables and allocate the total arrangement consideration
based upon relative estimated selling prices. Each unit of accounting is then accounted for under the applicable revenue recognition
guidance. For RFID equipment and related services, revenue generally is recorded when all customer-defined acceptance criteria
are satisfied. For RFID software support services, revenue generally is amortized over the term of the support contract.
On occasion, we may recognize revenue under
a bill and hold arrangement. Under a bill and hold arrangement revenue is recognized when the product is manufactured, completed,
invoiced, and segregated from the seller’s other inventory so that it is not subjected to being used to fill other orders.
Upon invoicing under this arrangement, ownership has passed to the buyer with no residual warranty obligation or right of return
such that the earnings process is complete. The customer must request a bill and hold arrangement, preferably in writing, must
commit to the purchase, and the delivery date must be fixed.
Research and Development.
Research and development
costs are the costs related to developing new and improved products and manufacturing processes, including staff compensation
and related expenses, subcontract costs, materials, and supplies. Such costs are charged to expense when incurred and are included
in our consolidated statements of income.
Income Taxes.
We recognize a current tax liability
or asset for estimated taxes payable or refundable on tax returns for the current year and a deferred non-current tax liability
or asset for estimated future tax effects, attributable to temporary differences and carryforwards.
GPIC and its subsidiaries file separate
income tax returns in their respective jurisdictions. Income taxes are provided for the tax effects of transactions reported in
the consolidated financial statements and consist of taxes currently due plus deferred taxes related primarily to differences
between the basis of assets and liabilities for financial and income tax reporting. The deferred tax assets and liabilities represent
the future tax consequences of those differences, which will either be taxable or deductible when the assets and liabilities are
recovered or settled. Deferred taxes also are recognized for operating losses that are available to offset future income taxes.
We review all of our tax positions and
make a determination as to whether our position is more likely than not to be sustained upon examination by tax authorities. If
a tax position meets the more-likely-than-not standard, then the related tax benefit is measured based on the cumulative probability
that the amount is more likely than not to be realized upon ultimate settlement or disposition of the underlying issue.
We
recognize interest and penalties related to unrecognized tax positions in the provision for income taxes on our consolidated statements
of income.
Foreign Currency Transactions
.
The financial
statements of GPI SAS are measured using the euro as the functional currency. Assets and liabilities of GPI SAS are
translated into the U.S. dollar at exchange rates at the balance sheet date. Revenues and expenses are translated into the U.S.
dollar at average rates of exchange in effect during the year. The resulting cumulative translation adjustments are recorded within
accumulated other comprehensive loss.
The financial statements of GPI Asia
and GPI Mexicana are measured using the U.S. dollar as the functional currency. Non-monetary assets and liabilities are translated
at historical exchange rates, and monetary assets and liabilities are translated at current exchange rates. Exchange gains and
losses arising from translation are included in other income and expense in the consolidated statements of income.
Transaction gains and losses that arise
from exchange rate fluctuations on transactions with third parties denominated in a currency other than the functional currency
are included in the results of operations as incurred.
Comprehensive Income.
Comprehensive income includes
net income, unrealized gains and losses on available-for-sale securities recorded net of tax, and foreign currency translation
adjustments.
Estimates.
The preparation of consolidated financial
statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the
consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates and
assumptions have been made in determining the allowance for doubtful accounts receivable; write-downs of slow moving, excess,
and obsolete inventories; the depreciable lives of fixed and intangible assets; estimates for the recoverability of long-lived
assets, including intangible assets; the recoverability of deferred tax assets; and potential exposures relating to litigation,
claims, and assessments. Actual results could differ from those estimates and assumptions.
Recently Issued Accounting Standards.
In October
2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-16, Income Taxes (Topic 740):
Intra-Entity Transfers of Assets Other Than Inventory. These amendments require an entity to recognize the income tax consequences
of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments eliminate the exception
for an intra-entity transfer of an asset other than inventory. The ASU becomes effective for annual reporting periods beginning
after December 15, 2017, including interim reporting periods within those annual reporting periods. The Company has not adopted
this guidance for 2016 and is currently evaluating the impact of adoption but does not expect the adoption to significantly impact
the consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09,
Compensation – Stock Compensation (Topic 718), to simplify several aspects of the accounting for share-based payment award
transactions including: income tax consequences; classification of awards as either equity or liabilities; and classification
on the statement of cash flows. The amendments are effective for public companies for annual periods beginning after December
15, 2016, and interim periods within those annual periods. The Company has not adopted this guidance for 2016 and is currently
evaluating the impact of adoption and will consult with accounting experts as needed to assist with the implementation of this
standard.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842), to increase transparency and comparability among organizations by reporting lease assets and lease liabilities,
both finance (capital) and operating leases, on the balance sheet and disclosing key information about leasing arrangements. For
public companies, the updated guidance is effective for the financial statements issued for fiscal years beginning after December
15, 2018 (including interim periods within those fiscal years). Early adoption is permitted. The Company has not adopted this
guidance for 2016 and is currently evaluating the impact of adoption and will consult with accounting experts as needed to assist
with the implementation of this standard.
In November 2015, the FASB issued ASU 2015-17
Balance Sheet Classification of Deferred Taxes, which requires that deferred tax assets and deferred tax liabilities be classified
as noncurrent in the balance sheet. ASU No. 2015-17 is effective for the interim and annual periods beginning after December 15,
2016. Early adoption is permitted. During the fourth quarter of 2016, we elected to prospectively adopt this standard. The prior
reporting period was not retrospectively adjusted. The adoption of this guidance had no impact on our consolidated statements
of income and comprehensive income.
In July 2015, the FASB issued ASU 2015-11,
Inventory (Topic 330): Simplifying the Measurement of Inventory. The guidance applies to any entity measuring inventory using
first-in, first-out or average cost. The main provision of this guidance requires an entity to measure inventory within the scope
of this ASU at the lower of cost and net realizable value. This guidance is effective for fiscal years beginning after December
15, 2016, and interim periods within fiscal years beginning after December 15, 2017. A reporting entity should apply the amendments
prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The Company has
not adopted this guidance for 2016 and is currently evaluating the impact of adoption but does not expect the adoption to significantly
impact the consolidated financial statements.
In August 2015, the FASB issued ASU 2014-15,
'Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s
Ability to Continue as a Going Concern. The amendments in ASU 2014-15 are intended to define management’s responsibility
to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide
related footnote disclosures. This ASU is effective for annual periods ending after December 15, 2016, and interim periods within
annual periods beginning after December 15, 2016. During the fourth quarter of 2016, we early adopted this standard. As such we
evaluated the Company’s situation and concluded that there was no substantial doubt about the Company’s ability to
continue as a going concern.
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. To further assist with
adoption and implementation of ASU 2014-09, the FASB issued the following ASUs:
•ASU 2016-08 (Issued March 2016) -
Principal versus Agent Consideration (Reporting Revenue Gross versus Net)
•ASU 2016-10 (Issued April 2016) -
Identifying Performance Obligations and Licensing
•ASU 2016-12 (Issued May 2016) - Narrow-Scope
Improvements and Practical Expedients
•ASU 2016-20 (Issued December 2016)
- Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers
This standard is effective in the first
quarter of 2018 for public companies and requires either a retrospective or a modified retrospective approach to adoption. The
Company has not adopted this guidance for 2016 and is currently evaluating the impact of adoption but does not expect it to significantly
impact the consolidated financial statements.
Note 2. Dolphin Asset Acquisition
On May 11, 2016, the Company entered into
and closed an Asset Purchase Agreement to purchase certain assets used in the design and manufacture of casino currency from Dolphin
Products Limited (Dolphin), a wholly owned subsidiary of Entertainment Gaming Asia Inc. (EGT). The purchased assets were primarily
equipment and inventory.
The acquisition was treated as an asset
acquisition. The total cost of the acquisition was $7.3 million, with $5.1 million paid at December 31, 2016 and $1.1 million,
included in accrued liabilities and non-current other liabilities, to be paid on each of the first two anniversaries of the closing.
The acquisition cost has been allocated as follows (in thousands):
|
|
Assets
acquired
|
|
Property and equipment
|
|
$
|
5,691
|
|
Inventory
|
|
|
1,622
|
|
|
|
|
|
|
Total acquired
|
|
$
|
7,313
|
|
Note 3. Cash, Cash Equivalents, and Marketable Securities
We hold our cash, cash equivalents, and
marketable securities in various financial institutions in the countries shown below. Substantially all accounts have balances
in excess of government-insured limits. The following summarizes our holdings at December 31 (in thousands):
|
|
2016
|
|
|
2015
|
|
|
|
Cash and
Cash
Equivalents
|
|
|
Marketable
Securities
|
|
|
Total
|
|
|
Cash and
Cash
Equivalents
|
|
|
Marketable
Securities
|
|
|
Total
|
|
Macau S.A.R., China
|
|
$
|
4,104
|
|
|
$
|
-
|
|
|
$
|
4,104
|
|
|
$
|
4,040
|
|
|
$
|
-
|
|
|
$
|
4,040
|
|
France
|
|
|
3,263
|
|
|
|
-
|
|
|
|
3,263
|
|
|
|
887
|
|
|
|
3,503
|
|
|
|
4,390
|
|
United States (including Mexico)
|
|
|
3,237
|
|
|
|
-
|
|
|
|
3,237
|
|
|
|
12,861
|
|
|
|
-
|
|
|
|
12,861
|
|
Total
|
|
$
|
10,604
|
|
|
$
|
-
|
|
|
$
|
10,604
|
|
|
$
|
17,788
|
|
|
$
|
3,503
|
|
|
$
|
21,291
|
|
Available-for-sale marketable securities
as of December 31, 2015 consist of investments in securities such as certificates of deposit offered by French banks and bond
mutual funds (in thousands):
|
|
2015
|
|
|
|
Cost
|
|
|
Unrealized
Gain/(Loss)
|
|
|
Fair Value
|
|
Certificates of deposit
|
|
$
|
2,727
|
|
|
$
|
-
|
|
|
$
|
2,727
|
|
Bond mutual funds
|
|
|
776
|
|
|
|
-
|
|
|
|
776
|
|
Total marketable securities
|
|
$
|
3,503
|
|
|
$
|
-
|
|
|
$
|
3,503
|
|
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 December 31, 2016, one casino customer
accounted for 25% of our accounts receivable balance. At December 31, 2015, a different casino customer accounted for 33% of our
accounts receivable balance.
The allowance for doubtful accounts consists
of the following (in thousands):
|
|
Balance at
Beginning
of
Year
|
|
|
Provision
|
|
|
Write-offs,
Net of
Recoveries
|
|
|
Exchange
Rate Effect
|
|
|
Balance at
End of
Period
|
|
2016
|
|
$
|
990
|
|
|
$
|
(102
|
)
|
|
$
|
(84
|
)
|
|
$
|
-
|
|
|
$
|
804
|
|
2015
|
|
$
|
302
|
|
|
$
|
711
|
|
|
$
|
(19
|
)
|
|
$
|
(4
|
)
|
|
$
|
990
|
|
Note 5. Inventories
Inventories consist of the following at
December 31 (in thousands):
|
|
2016
|
|
|
2015
|
|
Raw materials
|
|
$
|
11,129
|
|
|
$
|
7,653
|
|
Work in progress
|
|
|
1,137
|
|
|
|
668
|
|
Finished goods
|
|
|
3,319
|
|
|
|
2,548
|
|
Total inventories
|
|
$
|
15,585
|
|
|
$
|
10,869
|
|
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 consolidated balance sheets is as follows at December 31 (in thousands):
|
|
2016
|
|
|
2015
|
|
Current
|
|
$
|
14,987
|
|
|
$
|
10,199
|
|
Non-current
|
|
|
598
|
|
|
|
670
|
|
Total inventories
|
|
$
|
15,585
|
|
|
$
|
10,869
|
|
Note 6. Other Current Assets
Other current assets consist of the following
at December 31 (in thousands):
|
|
2016
|
|
|
2015
|
|
Income tax-related assets
|
|
$
|
722
|
|
|
$
|
135
|
|
Refundable value-added tax
|
|
|
516
|
|
|
|
818
|
|
Deposits
|
|
|
328
|
|
|
|
478
|
|
Other, net
|
|
|
54
|
|
|
|
145
|
|
Total other current assets
|
|
$
|
1,620
|
|
|
$
|
1,576
|
|
Note 7. Property and Equipment
Property and equipment consists of the
following at December 31 (in thousands):
|
|
2016
|
|
|
2015
|
|
Land
|
|
$
|
636
|
|
|
$
|
520
|
|
Buildings and improvements
|
|
|
10,280
|
|
|
|
6,839
|
|
Equipment and furniture
|
|
|
35,618
|
|
|
|
26,912
|
|
Vehicles
|
|
|
379
|
|
|
|
403
|
|
Construction in progress
|
|
|
1,327
|
|
|
|
1,403
|
|
|
|
|
48,240
|
|
|
|
36,077
|
|
Less accumulated depreciation
|
|
|
(23,930
|
)
|
|
|
(21,975
|
)
|
Property and equipment, net
|
|
$
|
24,310
|
|
|
$
|
14,102
|
|
Depreciation expense for the years ended
December 31, 2016 and 2015 was $3.3 million and $2.4 million, respectively. At December 31, 2016 the $1.3 million of construction
in progress was primarily related to Dolphin assets waiting to be placed in service and the building expansion at our Blue Springs,
Missouri, facility. At December 31, 2015, the $1.4 million of construction in progress was primarily related to the Blue Springs,
Missouri, facility building expansion.
Note 8. Goodwill and Intangible Assets
We have goodwill valued
at $10.3 million as of December 31, 2016 arising from the GemGroup acquisition in 2014.
Intangible assets consist
of the following at December 31 (dollars in thousands):
|
|
2016
|
|
|
2015
|
|
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accum
Amort
|
|
|
Net
Carrying
Amount
|
|
|
Gross
Carrying
Amount
|
|
|
Accum
Amort
|
|
|
Net
Carrying
Amount
|
|
|
Estimated
Useful
Life
(Years)
|
Trademarks
|
|
$
|
1,711
|
|
|
$
|
(579
|
)
|
|
$
|
1,132
|
|
|
$
|
1,772
|
|
|
$
|
(454
|
)
|
|
$
|
1,318
|
|
|
10-15
|
Customer list
|
|
|
897
|
|
|
|
(278
|
)
|
|
|
619
|
|
|
|
1,323
|
|
|
|
(245
|
)
|
|
|
1,078
|
|
|
10-15
|
Patents
|
|
|
542
|
|
|
|
(527
|
)
|
|
|
15
|
|
|
|
542
|
|
|
|
(520
|
)
|
|
|
22
|
|
|
14
|
Other intangible assets
|
|
|
372
|
|
|
|
(320
|
)
|
|
|
52
|
|
|
|
372
|
|
|
|
(285
|
)
|
|
|
87
|
|
|
3-10
|
Total intangible assets
|
|
$
|
3,522
|
|
|
$
|
(1,704
|
)
|
|
$
|
1,818
|
|
|
$
|
4,009
|
|
|
$
|
(1,504
|
)
|
|
$
|
2,505
|
|
|
|
Amortization expense for intangible assets
for the years ended December 31, 2016 and 2015 was $273,000 and $288,000, respectively. The reduction in trademarks and in
customer list reflects a reduction in the fair value of those items. A $400,000 impairment loss for a decrease in fair value of
a trademark and a customer list was recorded under general and administrative expenses. The decrease in fair value was the result
of the loss of two customers.
The following table provides estimated
amortization expense for the years ending December 31 (in thousands):
|
|
Amortization
|
|
Year
|
|
Expense
|
|
2017
|
|
$
|
224
|
|
2018
|
|
|
209
|
|
2019
|
|
|
203
|
|
2020
|
|
|
202
|
|
2021
|
|
|
193
|
|
Thereafter
|
|
|
787
|
|
Total
|
|
$
|
1,818
|
|
Note 9. Accrued Liabilities
Accrued liabilities consist of the following
at December 31 (in thousands):
|
|
2016
|
|
|
2015
|
|
Accrued bonuses and commissions
|
|
$
|
1,221
|
|
|
$
|
1,590
|
|
Accrued salaries, wages, and related costs
|
|
|
1,182
|
|
|
|
1,308
|
|
Accrued fixed asset acquisition liability
|
|
|
1,076
|
|
|
|
-
|
|
Accrued vacation
|
|
|
894
|
|
|
|
906
|
|
Miscellaneous taxes
|
|
|
578
|
|
|
|
576
|
|
Accrued legal fees
|
|
|
15
|
|
|
|
550
|
|
Other
|
|
|
732
|
|
|
|
1,526
|
|
Total accrued liabilities
|
|
$
|
5,698
|
|
|
$
|
6,456
|
|
The accrued fixed
asset acquisition liability is the current portion of the liability owed to EGT and resulting from the Dolphin acquisition (described
at Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 2. Dolphin
Asset Acquisition). A non-current liability is also recorded for the same amount: $1.1 million.
Note 10. Debt
On June 26, 2015,
the Company entered into a Credit Agreement with Nevada State Bank to borrow a combined $15.0 million, consisting of a $10.0 million
seven-year term loan and a $5.0 million five-year revolving loan. The Company borrowed the full amount under the term loan and
has not drawn on funds under the revolving loan. The term loan will mature on June 26, 2022, and the revolving loan will mature
on June 26, 2020. The Credit Agreement contains customary representations, warranties, and events of default, and affirmative,
negative and financial covenants. The covenants contain, among other things, limitations on the Company's and its subsidiaries'
ability to merge, consolidate, dispose of assets, or incur liens or certain indebtedness. The Company is required to maintain
a fixed charge coverage ratio greater than 1.15 to 1.00 and leverage ratio less than 3.00 to 1.00. The Company is in compliance
with all financial covenants as of December 31, 2016.
Interest on funds
borrowed under the term loan and the revolving loan are charged at a rate per annum equal to LIBOR plus 2.25%. The term loan has
a straight-line seven year amortization schedule.
At December 31, 2016,
estimated repayment obligations for the principal balance of long-term debt are as follows (in thousands):
Year
|
|
Long
Term Debt
|
|
2017
|
|
$
|
1,367
|
|
2018
|
|
|
1,406
|
|
2019
|
|
|
1,447
|
|
2020
|
|
|
1,489
|
|
2021
|
|
|
1,532
|
|
Thereafter
|
|
|
775
|
|
|
|
$
|
8,016
|
|
Note 11. Commitments and Contingencies
Operating Lease Commitments
The Company has various operating leases that are used in the normal course of business. The operating leases consist of buildings
and equipment that expire at various points through 2022.
Operating lease expense for the years ended
December 31, 2016 and 2015 was $1,704,000 and $841,000, respectively. Our operating lease expenses are recognized on a straight-line
basis.
The following schedule reflects our future
minimum lease payments under operating leases, including related-party payments described at Item 8. Financial Statements and
Supplementary Data – Notes to Consolidated Financials Statements - Note 19. Related-Party Transactions for the years
ending December 31 (in thousands):
|
|
Minimum
|
|
|
|
Lease
|
|
Year
|
|
Payments
|
|
2017
|
|
$
|
929
|
|
2018
|
|
|
719
|
|
2019
|
|
|
294
|
|
2020
|
|
|
264
|
|
2021
|
|
|
269
|
|
Thereafter
|
|
|
216
|
|
Total
|
|
$
|
2,691
|
|
Legal Proceedings and Contingencies
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.
From time to time we are engaged in disputes
and claims that arise in the normal course of business. We believe that the ultimate outcome of these proceedings will not have
a material adverse impact on our consolidated financial position or results of operations, but the outcome of these actions is
inherently difficult to predict. There can be no assurance that we will prevail in any such litigation. 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.
Employment Agreements
The
Company has employment agreements with key employees which include severance commitments in the event the Company terminates the
employee without cause. Total commitments under the agreements aggregate approximately $697,000.
Note 12. 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).
The CEO manages our operations on a consolidated basis to make decisions about overall corporate resource allocation and to assess
overall corporate profitability. Our CEO is also the chief operating manager for each of our entities in the United States, France,
and Macau S.A.R.; that is, the individual locations do not have “segment,” or “product line,” managers
who report to our CEO.
The following table presents certain data
by geographic area for the years ended December 31 (dollars in thousands):
|
|
2016
|
|
|
2015
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Americas
|
|
$
|
56,247
|
|
|
|
68.5
|
%
|
|
$
|
53,211
|
|
|
|
68.0
|
%
|
Asia-Pacific
|
|
|
21,353
|
|
|
|
26.0
|
%
|
|
|
21,341
|
|
|
|
27.3
|
%
|
Europe and Africa
|
|
|
4,539
|
|
|
|
5.5
|
%
|
|
|
3,686
|
|
|
|
4.7
|
%
|
Total
|
|
$
|
82,139
|
|
|
|
100.0
|
%
|
|
$
|
78,238
|
|
|
|
100.0
|
%
|
The following table represents our net
sales by product line for the years ended December 31 (dollars in thousands):
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino currency without RFID
|
|
$
|
15,698
|
|
|
|
19.1
|
%
|
|
$
|
17,762
|
|
|
|
22.8
|
%
|
Casino currency with RFID
|
|
|
16,123
|
|
|
|
19.6
|
%
|
|
|
12,852
|
|
|
|
16.4
|
%
|
Total casino currency
|
|
|
31,821
|
|
|
|
38.7
|
%
|
|
|
30,614
|
|
|
|
39.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Playing cards
|
|
|
26,708
|
|
|
|
32.5
|
%
|
|
|
24,171
|
|
|
|
30.9
|
%
|
Table accessories and other products
|
|
|
6,639
|
|
|
|
8.1
|
%
|
|
|
7,243
|
|
|
|
9.3
|
%
|
Table layouts
|
|
|
5,259
|
|
|
|
6.4
|
%
|
|
|
6,199
|
|
|
|
7.9
|
%
|
RFID solutions
|
|
|
3,000
|
|
|
|
3.7
|
%
|
|
|
2,186
|
|
|
|
2.8
|
%
|
Dice
|
|
|
2,859
|
|
|
|
3.5
|
%
|
|
|
2,685
|
|
|
|
3.4
|
%
|
Gaming furniture
|
|
|
2,645
|
|
|
|
3.2
|
%
|
|
|
1,990
|
|
|
|
2.5
|
%
|
Shipping
|
|
|
3,208
|
|
|
|
3.9
|
%
|
|
|
3,150
|
|
|
|
4.0
|
%
|
Total
|
|
$
|
82,139
|
|
|
|
100.0
|
%
|
|
$
|
78,238
|
|
|
|
100.0
|
%
|
In 2016, we had no casino customer that
accounted for 10% or more of revenues. In 2015, one Macau S.A.R casino customer accounted for 10% of revenues.
The following table represents our property
and equipment, net by geographic area at December 31 (in thousands):
|
|
2016
|
|
|
2015
|
|
United States
|
|
$
|
13,242
|
|
|
$
|
7,000
|
|
Mexico
|
|
|
6,142
|
|
|
|
3,249
|
|
France
|
|
|
4,614
|
|
|
|
3,544
|
|
Macau S.A.R., China
|
|
|
312
|
|
|
|
309
|
|
Total
|
|
$
|
24,310
|
|
|
$
|
14,102
|
|
The following table represents our intangible
assets, net by geographic area at December 31 (in thousands):
|
|
2016
|
|
|
2015
|
|
United States
|
|
$
|
1,772
|
|
|
$
|
2,006
|
|
Macau S.A.R., China
|
|
|
46
|
|
|
|
497
|
|
France
|
|
|
-
|
|
|
|
2
|
|
Total
|
|
$
|
1,818
|
|
|
$
|
2,505
|
|
Note 13. Pension Plans
For employees of GPI SAS, we sponsor a
non-contributory, defined-benefit pension plan (the Pension Plan) which funds a mandatory payment when employees retire at age
65. The lump-sum benefit amount is based on years of service, job classification, and compensation in the 12 months prior to retirement.
The following amounts relate to the Pension Plan at December 31 (in thousands):
|
|
2016
|
|
|
2015
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
458
|
|
|
$
|
472
|
|
Service cost
|
|
|
28
|
|
|
|
28
|
|
Interest cost
|
|
|
10
|
|
|
|
9
|
|
Actuarial loss
|
|
|
38
|
|
|
|
5
|
|
Benefits paid
|
|
|
(18
|
)
|
|
|
(7
|
)
|
Effect of foreign exchange rate changes
|
|
|
(19
|
)
|
|
|
(49
|
)
|
Benefit obligation at end of year
|
|
$
|
497
|
|
|
$
|
458
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
362
|
|
|
$
|
401
|
|
Actual (loss) return on plan assets
|
|
|
(34
|
)
|
|
|
2
|
|
Effect of foreign exchange rate changes
|
|
|
(11
|
)
|
|
|
(41
|
)
|
Fair value of plan assets at end of year
|
|
|
317
|
|
|
|
362
|
|
Funded status and accrued benefit cost
|
|
$
|
(180
|
)
|
|
$
|
(96
|
)
|
At December 31, 2016 and 2015, the accrued
benefit cost of $180,000 and $96,000, respectively, was recognized in the consolidated balance sheet in other liabilities.
Pension Plan assets are measured using
a Level 1 valuation methodology and consist of the following asset funds at December 31 (in thousands):
|
|
2016
|
|
|
2015
|
|
Worldwide bond fund
|
|
$
|
158
|
|
|
$
|
165
|
|
Guaranteed equity fund
|
|
|
31
|
|
|
|
58
|
|
European equity fund
|
|
|
128
|
|
|
|
139
|
|
Fair value of plan assets at end of year
|
|
$
|
317
|
|
|
$
|
362
|
|
We did not make any contribution to the
Pension Plan in either 2016 or 2015.
The weighted-average assumptions used in
measuring the net periodic benefit cost and Pension Plan obligations as of December 31 are:
|
|
2016
|
|
|
2015
|
|
Net periodic benefit cost:
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
1.50
|
%
|
|
|
2.00
|
%
|
|
|
|
|
|
|
|
|
|
Pension Plan obligations:
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
1.50
|
%
|
|
|
2.00
|
%
|
Rate of compensation increase
|
|
|
2.00
|
%
|
|
|
2.00
|
%
|
The accumulated benefit obligation was
$405,000 and $370,000 as of December 31, 2016 and 2015, respectively.
Net pension expense consisted of the following
for the years ended December 31 (in thousands):
|
|
2016
|
|
|
2015
|
|
Service-cost benefits earned during the period
|
|
$
|
28
|
|
|
$
|
28
|
|
Interest expense on benefit obligation
|
|
|
10
|
|
|
|
9
|
|
Actual (return) loss on plan assets
|
|
|
34
|
|
|
|
(2
|
)
|
Actuarial loss
|
|
|
38
|
|
|
|
5
|
|
Net pension expense
|
|
$
|
110
|
|
|
$
|
40
|
|
Projected benefit payments from the Pension
Plan as of December 31, 2016 are estimated at $6,000 for 2017 through 2020, and an aggregate of $158,000 for 2021 through
2025.
We also sponsor a 401(k) plan for employees
in the United States (the 401K Plan) who have worked for us for longer than six months and are 21 years of age or older.
Our contributions to the 401K Plan are based on the amounts contributed by eligible employees. Eligible employees can elect to
contribute into the 401K Plan up to the lesser of the IRS annual limit or 15 percent of their earnings. We contribute $0.50 for
each $1.00 contributed by a participant in the 401K Plan up to 4 percent of the participant’s wages. Our contributions to
the 401K Plan for the years ended December 31, 2016 and 2015 were $101,000 and $110,000, respectively.
Note 14. Stockholders’ Equity
On December 1, 2011, the Board of Directors
approved a stock repurchase program which authorized the repurchase of up to 5%, or 409,951 shares, of our 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 December 31, 2016, we have repurchased an aggregate of 282,922 shares of our common stock at a cost of $2.1
million, or a weighted-average price of $7.30 per share. No shares were repurchased during 2016 or 2015, and there is no assurance
that we will repurchase any additional shares under the repurchase program. As of December 31, 2016, 215,590 shares remain authorized
for repurchase. Repurchases are subject to market conditions, share price, and other factors, as well as periodic review by the
Board of Directors.
In December 2016 we paid a special cash
dividend of $0.12 per issued and outstanding common share resulting in an aggregate dividend of $951,431.
Note 15. Stock Option Programs and Share-based Compensation
Expense
We have one active stock option plan which
is the 1994 Directors’ Stock Option Plan, as amended and extended through January 31, 2019 (the Directors’ Plan).
We are also party to a stock option agreement (Gronau Agreement) with our CEO, Gregory S. Gronau. The Directors’ Plan and
the Gronau Agreement were both approved by our stockholders.
The Directors’ Plan provides that
each non-employee director, upon joining the Board of Directors, will receive an initial option to purchase 6,000 shares of common
stock. The initial option grant vests over a three-year period, with one-third of the option grant vesting at the end of each
year. At the beginning of the fourth year of service on the Board of Directors, and each year thereafter, each non-employee director
receives an annual grant to purchase 2,000 shares of common stock. In addition, each non-employee director annually receives options
to purchase 1,500 shares of common stock for serving on certain committees of the Board of Directors. Options granted after the
initial option grant vest immediately and are exercisable after six months.
The Board of Directors may grant discretionary
stock options covering up to 100,000 shares to non-employee directors. Discretionary stock options vest immediately and are exercisable
after six months. There were no discretionary stock option grants in 2016 or 2015. A maximum of 450,000 shares of common stock
may be issued pursuant to options granted under the Directors’ Plan.
Mr. Gronau, was granted an option
to purchase 150,000 shares of our common stock in 2009 pursuant to the Gronau Agreement. The stock option has a ten-year term
and vested over a five-year period as follows: 20,000 shares on the first anniversary of the date of the grant; 30,000 shares
on each of the second, third, and fourth anniversaries; and 40,000 shares on the fifth anniversary of the date of grant.
The following is a summary of stock option
activity for the years ended December 31, 2016 and 2015:
|
|
Shares
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Term (Years)
|
|
|
Aggregate
Intrinsic
Value
(in thousands)
|
|
Outstanding at January 1, 2015
|
|
|
384,000
|
|
|
$
|
7.60
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
24,750
|
|
|
|
9.59
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(3,500
|
)
|
|
|
18.37
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(12,500
|
)
|
|
|
6.97
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2015
|
|
|
392,750
|
|
|
|
7.65
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
25,500
|
|
|
|
9.83
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(15,500
|
)
|
|
|
19.40
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
402,750
|
|
|
$
|
7.34
|
|
|
|
3.9
|
|
|
$
|
1,855
|
|
Exercisable at December 31, 2016
|
|
|
387,250
|
|
|
$
|
7.22
|
|
|
|
3.6
|
|
|
$
|
1,855
|
|
For the year ended December 31, 2016, there
were no options exercised. For the year ended December 31, 2015, the total intrinsic value of options exercised was $87,000.
We estimate the fair value of each stock
option award on the grant date using the Black-Scholes valuation model. Dividends and expected volatility are based on historical
factors related to our common stock. The risk-free rate is based on United States Treasury rates appropriate for the expected
term, which is based on the contractual term of the options, as well as historical exercise and termination behavior.
The following table summarizes the weighted-average
assumptions used, and related information, for option activity for the years indicated.
Option valuation assumptions:
|
|
2016
|
|
|
2015
|
|
Dividend yield
|
|
|
3.0
|
%
|
|
|
3.0
|
%
|
Expected volatility
|
|
|
34.1
|
%
|
|
|
34.1
|
%
|
Risk-free interest rate
|
|
|
1.36
|
%
|
|
|
1.50
|
%
|
Expected term of options
|
|
|
5.6 yrs
|
|
|
|
5.6 yrs
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value of options granted during the period
|
|
$
|
3.35
|
|
|
$
|
3.09
|
|
The following table summarizes our reported
stock compensation expense, which is included in general and administrative expenses in our consolidated statements of income
as of December 31 (in thousands):
|
|
2016
|
|
|
2015
|
|
Stock compensation
|
|
$
|
86
|
|
|
$
|
77
|
|
Estimated tax benefit
|
|
|
(31
|
)
|
|
|
(28
|
)
|
Total stock compensation, net of tax benefit
|
|
$
|
55
|
|
|
$
|
49
|
|
Note 16. Other Income and Expense
Other income and expense consists of the
following for the years ended December 31 (in thousands):
|
|
2016
|
|
|
2015
|
|
Interest income
|
|
$
|
23
|
|
|
$
|
12
|
|
Interest expense
|
|
|
(242
|
)
|
|
|
(248
|
)
|
Gain on foreign currency transactions
|
|
|
187
|
|
|
|
38
|
|
Other (expense) income, net
|
|
|
(2
|
)
|
|
|
25
|
|
Total other (expense) income, net
|
|
$
|
(34
|
)
|
|
$
|
(173
|
)
|
Note 17. Income Taxes
The following table provides an analysis
of our provision for income taxes for the years ended December 31 (in thousands):
|
|
2016
|
|
|
2015
|
|
Current:
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
1,035
|
|
|
$
|
1,207
|
|
U.S. State
|
|
|
43
|
|
|
|
251
|
|
Foreign
|
|
|
619
|
|
|
|
464
|
|
Total Current
|
|
|
1,697
|
|
|
|
1,922
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
|
666
|
|
|
|
673
|
|
U.S. State
|
|
|
59
|
|
|
|
(127
|
)
|
Foreign
|
|
|
(79
|
)
|
|
|
337
|
|
Total Deferred
|
|
|
646
|
|
|
|
883
|
|
Income tax provision (benefit)
|
|
$
|
2,343
|
|
|
$
|
2,805
|
|
Income before income taxes consisted of
the following for the years ended December 31 (in thousands):
|
|
2016
|
|
|
2015
|
|
Foreign
|
|
$
|
4,532
|
|
|
$
|
5,067
|
|
United States
|
|
|
2,994
|
|
|
|
4,669
|
|
Income before income taxes
|
|
$
|
7,526
|
|
|
$
|
9,736
|
|
A reconciliation of our income tax expense
as compared to the tax expense calculated by applying the statutory federal tax rate to income before income taxes for the years
ended December 31 is as follows:
|
|
2016
|
|
|
2015
|
|
Computed expected income tax expense
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State income taxes, net of federal benefits
|
|
|
1.0
|
%
|
|
|
1.7
|
%
|
Subpart F income adjustment
|
|
|
8.6
|
%
|
|
|
24.5
|
%
|
Foreign rate differential (excluding research credit)
|
|
|
(10.2
|
)%
|
|
|
(10.0
|
)%
|
Change in valuation allowance
|
|
|
0.0
|
%
|
|
|
(20.4
|
)%
|
French research and low wage credit
|
|
|
(3.0
|
)%
|
|
|
(2.3
|
)%
|
Other, net
|
|
|
0.7
|
%
|
|
|
1.3
|
%
|
Income tax expense
|
|
|
31.1
|
%
|
|
|
28.8
|
%
|
The primary components of net deferred
income tax assets at December 31 are as follows (in thousands):
|
|
2016
|
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Tax credits
|
|
$
|
1,549
|
|
|
$
|
1,602
|
|
Property and equipment
|
|
|
357
|
|
|
|
497
|
|
Stock compensation
|
|
|
557
|
|
|
|
615
|
|
French deferred assets
|
|
|
410
|
|
|
|
279
|
|
Bad debt reserves and inventory
|
|
|
774
|
|
|
|
828
|
|
Operating loss carry forwards
|
|
|
7
|
|
|
|
7
|
|
Other
|
|
|
337
|
|
|
|
672
|
|
Total deferred tax assets
|
|
|
3,991
|
|
|
|
4,500
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Excess book basis in shares of GPI-SAS
|
|
$
|
1,547
|
|
|
$
|
1,603
|
|
French deferred liabilities
|
|
|
262
|
|
|
|
338
|
|
Intangible assets
|
|
|
603
|
|
|
|
379
|
|
Total deferred tax liabilities
|
|
|
2,412
|
|
|
|
2,320
|
|
Deferred tax assets, net
|
|
$
|
1,579
|
|
|
$
|
2,180
|
|
We prospectively adopted the provisions
of ASU No. 2015-17 as of December 31, 2016. The adoption of the provision caused us to reclassify current deferred tax assets
to noncurrent (netted within noncurrent liabilities) on our consolidated balance sheets. The prior reporting period was not retrospectively
adjusted.
For our investment in GPI Asia, deferred
taxes are not being provided on unrepatriated foreign earnings. These earnings are considered permanently reinvested, since it
is management’s intention to reinvest these foreign earnings in future operations. We project that we will have sufficient
cash flow in the U.S. and will not need to repatriate the foreign earnings from GPI Asia to finance U.S. operations. Except for
the deemed dividends under Section 956 in 2015 and under Subpart F, we continue to assert that earnings from GPI Asia will be
permanently reinvested. As of December 31, 2016, we had unremitted earnings of $0.4 million for GPI Asia. There were no unremitted
earnings for GPI Asia at December 31, 2015.
We are subject to taxation in the U.S.
and various states and foreign jurisdictions. With few exceptions, the tax years 2013 through 2016 remain open to examination
under the statute of limitations by the U.S. Internal Revenue Service and various states for GPIC and GPI USA, by the French Tax
Administration for GPI SAS, and by the Government of the Macau Special Administrative Region - Financial Services Bureau for GPI
Asia. In 2015, the French Tax Administration started an examination of GPI SAS for tax years 2013 and 2012 that is on-going.
A reconciliation of the beginning and ending
amounts of unrecognized tax benefits, including estimated interest and penalties, is as follows (in thousands):
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
241
|
|
|
$
|
-
|
|
Increases related to current year tax positions
|
|
|
-
|
|
|
|
241
|
|
Foreign currency translation
|
|
|
17
|
|
|
|
-
|
|
Balance at end of year
|
|
$
|
258
|
|
|
$
|
241
|
|
All of the liability as of December 31,
2016 would affect our effective tax rate if recognized and amounts of interest and penalties are not expected to be significant.
We anticipate that the balance of the unrecognized tax benefits will be eliminated within the next twenty-four months.
Note 18. Earnings per Share (EPS)
The weighted-average number of common shares
outstanding used in the computation of basic and diluted earnings per share is as follows (in thousands):
|
|
2016
|
|
|
2015
|
|
Weighted-average number of common shares outstanding - basic
|
|
|
7,929
|
|
|
|
7,926
|
|
Potential dilution from equity grants
|
|
|
113
|
|
|
|
114
|
|
Weighted-average number of common shares outstanding - diluted
|
|
|
8,042
|
|
|
|
8,040
|
|
We have certain outstanding stock options
to purchase common stock which have exercise prices greater than the average market price. These anti-dilutive options have been
excluded from the computation of diluted net income per share. Outstanding anti-dilutive options for the years ended December
31, 2016 and 2015 totaled to 38,077 and 46,500, respectively.
Note 19. Related-Party Transactions
We lease two manufacturing facilities totaling
approximately 90,000 square feet located in San Luis Rio Colorado, Mexico, from an entity controlled by the family of Frank Moreno,
the General Manager of GPI Mexicana. The facilities are leased through December 2018 at a monthly rent amount of $0.31 per square
foot, or approximately $28,000.
In 2016, Alexandre Thieffry became our
Executive Vice President of Finance. Mr. Alexandre Thieffry is the son of Alain Thieffry, our Chief Financial Officer and Chairperson
of the Board. Mr. Alexandre Thieffry served as our Controller from 2011 through 2015.
Neither Mr. Moreno nor Alexandre Thieffry
are directors or executive officers of the Company. Mr. Alain Thieffry is a director and executive officer of the Company. Our
audit committee reviews any related party transactions involving our directors and executive officers.