0001104659-04-021036.txt : 20040728 0001104659-04-021036.hdr.sgml : 20040728 20040727162345 ACCESSION NUMBER: 0001104659-04-021036 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040727 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20040727 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHUFFLE MASTER INC CENTRAL INDEX KEY: 0000718789 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS MANUFACTURING INDUSTRIES [3990] IRS NUMBER: 411448495 STATE OF INCORPORATION: MN FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-20820 FILM NUMBER: 04933617 BUSINESS ADDRESS: STREET 1: 1106 PALMS AIRPORT DRIVE CITY: LAS VEGAS STATE: NV ZIP: 89119 BUSINESS PHONE: 7028977150 8-K/A 1 a04-8238_18ka.htm 8-K/A

United States
Securities and Exchange Commission

Washington, D.C. 20549

FORM 8-K/A

Amendment No. 1

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report: July 27, 2004
Date of Earliest Event Reported: May 13, 2004

SHUFFLE MASTER, INC.
(Exact name of registrant as specified in its charter)

Minnesota	0-20820	41-1448495
(State or Other Jurisdiction of Incorporation or Organization)	(Commission File Number)	(IRS Employer Identification No.)

1106 Palms Airport Drive Las Vegas, Nevada		89119-3720
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code: (702) 897-7150

Item 2. Acquisition or Disposition of Assets

On May 13, 2004, with an effective date of May 1, 2004, Shuffle Master, Inc. and subsidiaries (the “Company”) acquired a 100% ownership interest in CARD Casinos Austria Research & Development GmbH & Co KG and its subsidiaries (“CARD”) from Casinos Austria AG and its affiliate.

The purchase price, paid at closing, consisted of a Euro-denominated cash payment of € 25,935,000 and the issuance of 767,076 shares of the Company’s common stock. The cash payment was funded with a partial use of proceeds from the Company’s $150,000,000 issuance, in April 2004, of contingent convertible senior notes. The Company is required to register the shares by November 17, 2004. Prior to the effective registration of the stock, Casinos Austria has the right to require the Company to purchase back the 767,076 shares at an aggregate price of €15,813,000.

The CARD acquisition is being accounted for as a business combination, and accordingly, the Company is in the process of determining its allocation of the total purchase price of approximately $56,000,000 to the fair value of the assets acquired and liabilities assumed. CARD’s products have been assigned to the Company’s Utility products segment. Beginning May 1, 2004, CARD’s operating results will be included in the Company’s consolidated financial statements. Management expects this acquisition to be immediately accretive to the Company’s earnings.

CARD, which is now a subsidiary of the Company’s Shuffle Master International subsidiary, provides the Company with a headquarters and direct sales force for European business centrally located in Vienna and a satellite office in New Zealand. CARD develops, manufactures and supplies innovative casino products including one2six^(TM), a continuous shuffler that accommodates up to six decks of cards and can be used for almost every casino card game. In addition, CARD’s products under development include the Easy Chipper^(TM), a next-generation chip sorting device. Management believes that the acquisition of CARD enhances our Utility product offerings and provides the Company with opportunity to expand its global operations.

Item 7. Financial Statements and Exhibits

(a) Financial Statements of Businesses Acquired

The following financial statements of CARD are included as Exhibit 99.1:

• Audited consolidated balance sheets as of December 31, 2003 and 2002, and the related consolidated statements of income, changes in shareholder’s equity and cash flows for each of the two years in the period ended December 31, 2003.

• Unaudited condensed consolidated balance sheet as of March 31, 2004 and the related condensed consolidated statements of income and cash flows for the three month periods ended March 31, 2004 and 2003.

(b) Pro Forma Financial Information

The following unaudited pro forma combined financial statements are included as Exhibit 99.2:

• Unaudited pro forma combined balance sheet as of April 30, 2004.

• Unaudited pro forma combined statement of income for the year ended October 31, 2003.

• Unaudited pro forma combined statement of income for the six month period ended April 30, 2004.

(c) Exhibits

10.1 Purchase Agreement, dated May 13, 2004, by and between Casinos Austria AG and Cai Casinoinvest Middle East GMBH on the one hand and Shuffle Master Management – Service GMBH and Shuffle Master GMBH on the other hand (Incorporated by reference to Exhibit 10.1 in the Registrant’s Current Report on Form 8-K dated May 13, 2004).

10.2 Registration Rights Agreement dated May 13, 2004, by and between Casinos Austria AG on the one hand and Shuffle Master, Inc. on the other hand (Incorporated by reference to Exhibit 10.1 in the Registrant’s Current Report on Form 8-K dated May 13, 2004).

10.3 Agreement and Guaranty dated May 12, 2004, by and between Casinos Austria AG and Cai Casinoinvest Middle East GMBH on the one hand and Shuffle Master, Inc. on the other hand (Incorporated by reference to Exhibit 10.3 in the Registrant’s Current Report on Form 8-K dated May 13, 2004).

23 Independent Auditors’ Consent

99.1 Audited historical consolidated financial statements of CARD for the years ended December 31, 2003 and 2002 and unaudited historical condensed consolidated financial statements of CARD for the three month periods ended March 31, 2004 and 2003.

99.2 Unaudited pro forma combined balance sheet as of April 30, 2004 and unaudited pro forma combined statements of income for the six month period ended April 30, 2004 and the year ended October 31, 2003.

Forward Looking Statements

There are statements herein which are forward-looking statements that are based on management’s beliefs, as well as on assumptions made by and information available to management. The Company considers such statements to be made under the safe harbor created by the federal securities laws to which the Company is subject, and, other than as required by law, the Company assumes no obligation to update or supplement such statements.

These statements can be identified by the fact that they do not relate strictly to historical or current facts, and are based on management’s current beliefs and expectations about future events, as well as on assumptions made by and information available to management. These forward-looking statements include statements that reflect management’s beliefs, plans, objectives, goals, expectations, anticipations, intentions with respect to the Company’s financial condition, results of operations, future performance and business, including statements relating to its business strategy and its current and future development plans. When used in this report, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “project,” “might,” “may,” “could,” “will” and similar expressions or the negative thereof, as they relate to the Company or its management, identify forward-looking statements.

Forward-looking statements reflect and are subject to risks and uncertainties that could cause actual results to differ materially from expectations. Factors that could cause actual results to differ materially from expectations include, but are not limited to, the following:

• changes in the level of consumer or commercial acceptance of the Company’s existing products and new products as introduced;

• advances by competitors;

• acceleration and/or deceleration of various product development, promotion and distribution schedules;

• product performance issues;

• higher than expected manufacturing, service, selling, administrative, product development, promotion and/or distribution costs;

• changes in the Company’s business systems or in technologies affecting the Company’s products or operations;

• reliance on strategic relationships with distributors and technology and manufacturing vendors;

• current and/or future litigation or claims;

• tax matters including changes in tax legislation or assessments by taxing authorities;

• acquisitions or divestitures by the Company or its competitors of various product lines or businesses and, in particular, integration of businesses that the Company may acquire;

• changes to the Company’s intellectual property portfolio, such as the issuance of new patents, new intellectual property licenses, loss of licenses, claims of infringement or invalidity of patents;

• regulatory and jurisdictional issues (e.g., technical requirements and changes, delays in obtaining necessary approvals, or changes in a jurisdiction’s regulatory scheme or approach, etc.) involving the Company and its products specifically or the gaming industry in general;

• general and casino industry economic conditions;

• the financial health of the Company’s casino and distributor customers, suppliers and distributors, both nationally and internationally;

• the Company’s ability to meet debt service obligations and to refinance indebtedness, which will depend on future performance and other conditions or events and will be subject to many factors that are beyond; and

• various risks related to the Company’s customers’ operations in countries outside the United States, including currency fluctuation risk, which could increase the volatility of the Company’s results from such operations.

Additional information on these and other risk factors that could potentially affect the Company’s financial results may be found in documents filed by the Company with the Securities and Exchange Commission, including our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and Annual Report on Form 10-K.

SIGNATURE

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.

	SHUFFLE MASTER, INC.
	(Registrant)

	Date: July 27, 2004


	/s/ Mark L. Yoseloff
	Mark L. Yoseloff
	Chairman of the Board and Chief Executive Officer

EX-23 2 a04-8238_1ex23.htm EX-23

Exhibit 23

Independent Auditors’ Consent

We consent to the incorporation by reference in Registration Statements Nos. 33-88124, 33-88180, 333-09623, 333-39060, 333-39061, 333-39064, 333-39290, 333-61588, 333-101444, 333-100716 and 333-104659 of Shuffle Master, Inc. on Form S-8 of our report dated July 23, 2004, relating to the consolidated financial statements of CARD Casinos Austria Research and Development GmbH as of and for the year ended December 31, 2003, appearing in Amendment No. 1 on Form 8-K/A of Shuffle Master, Inc. dated July 27, 2004.

Deloitte Touche Tohmatsu

WirtschaftsprüfungsgmbH

Vienna, Austria

July 23, 2004

EX-99.1 3 a04-8238_1ex99d1.htm EX-99.1

Exhibit 99.1

CARD CASINOS AUSTRIA RESEARCH & DEVELOPMENT GMBH

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Independent Auditors’ Report

Financial Statements:

	Consolidated Statements of Income For the years ended December 31, 2003 and 2002

	Consolidated Balance Sheets As of December 31, 2003 and 2002

	Consolidated Statements of Changes in Shareholder’s Equity For the years ended December 31, 2003 and 2002

	Consolidated Statements of Cash Flows For the years ended December 31, 2003 and 2002

	Notes to Consolidated Financial Statements

Financial Statements (unaudited):

	Condensed Consolidated Statements of Income For the three month periods ended March 31, 2004 and 2003

	Condensed Consolidated Balance Sheets March 31, 2004 and December 31, 2003

	Condensed Consolidated Statements of Cash Flows For the three month periods ended March 31, 2004 and 2003

	Notes to Condensed Consolidated Financial Statements

Independent Auditors’ Report

To the Board of Directors and Shareholders of CARD Casinos Austria Research and Development GmbH:

We have audited the accompanying consolidated balance sheets of CARD Casinos Austria Research and Development GmbH, and subsidiaries (the “Company”) as of December 31, 2003 and 2002, and the related consolidated statements of income, changes in shareholder’s equity and cash flows for each of the two years in the period ended December 31, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of CARD Casinos Austria Research and Development GmbH and subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America.

Deloitte Touche Tohmatsu

WirtschaftsprüfungsgmbH

Vienna, Austria

July 23, 2004

CARD CASINOS AUSTRIA RESEARCH & DEVELOPMENT GMBH

CONSOLIDATED STATEMENTS OF INCOME

(Euros in thousands)

	Year Ended December 31,
	2003		2002

Sales	€	5,700	€	5,144
Sales to affiliates and related parties	596		732
Total sales	6,296		5,876

Costs and expenses:
Cost of sales	2,914		3,308
Selling	911		481
General and administrative	1,758		592
Research and development	289		526
Total costs and expenses	5,872		4,907

Income from operations	424		969
Other income, net	10		5
Income before income taxes	434		974
Provision for income taxes	165		328
Net income	€	269	€	646

See notes to consolidated financial statements

CARD CASINOS AUSTRIA RESEARCH & DEVELOPMENT GMBH

CONSOLIDATED BALANCE SHEETS

(Euros in thousands)

	December 31,
	2003		2002

ASSETS

Current assets:
Cash	€	723	€	1,895
Accounts receivable	903		1,057
Accounts receivable from affiliates and related parties	224		6
Tax receivables	171		311
Inventories	939		321
Prepaid expenses and deferred charges	42		42
Deferred income taxes	52		—
Other current assets	33		14
Total current assets	3,087		3,646
Property and equipment, net	278		198
Intangible assets, net	22		7
Deferred income taxes	83		48
Other assets	13		6
Total assets	€	3,483	€	3,905

LIABILITIES AND SHAREHOLDER’S EQUITY

Current liabilities:
Accounts payable	€	723	€	655
Accounts payable to affiliates and related parties	728		852
Accrued payroll and employee benefits	242		318
Customer deposits and unearned revenue	84		33
Income taxes payable	309		161
Deferred income taxes	—		58
Total current liabilities	2,086		2,077
Other non-current liabilities	19		19
Total liabilities	2,105		2,096
Contingencies
Shareholder’s equity:
Capital stock	1,000		1,000
Retained earnings	378		809
Total shareholder’s equity	1,378		1,809
Total liabilities and shareholder’s equity	€	3,483	€	3,905

See notes to consolidated financial statements

CARD CASINOS AUSTRIA RESEARCH & DEVELOPMENT GMBH

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER’S EQUITY

(Euros in thousands)

	Capital Stock		Retained Earnings			Total Shareholder’s Equity

Balance, December 31, 2001	€	1,000	€	163		€	1,163

Net income	—		646			646

Balance, December 31, 2002	1,000		809			1,809

Dividend paid	—		(700		)	(700		)
Net income	—		269			269

Balance, December 31, 2003	€	1,000	€	378		€	1,378

See notes to consolidated financial statements

CARD CASINOS AUSTRIA RESEARCH & DEVELOPMENT GMBH

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Euros in thousands)

	Year Ended December 31,
	2003			2002
Cash flows from operating activities:
Net income	€	269		€	646
Adjustments to reconcile net income to cash provided (used) by operating activities:
Depreciation and amortization	151			87
Gain on disposal of property and equipment	12			5
Provision for bad debts	—			(20		)
Provision for inventory obsolescence	64			47
Deferred income taxes	(145		)	56
Changes in operating assets and liabilities:
Accounts receivable	(64		)	(535		)
Tax receivables	140			(167		)
Inventories	(682		)	120
Prepaid expenses and deferred charges	—			(12		)
Other current assets	(19		)	12
Accounts payable	(121		)	836
Receipts (payments) from (to) related parties	64			(11		)
Payrolls and employee benefits	(75		)	278
Customer deposits and unearned revenue	51			(12		)
Income taxes payable	148			161
Net cash provided (used) by operating activities	(207		)	1,491
Cash flows from investing activities:
Purchases of property and equipment	(239		)	(233		)
Purchases of intangible assets	(19		)	(2		)
Proceeds from sale of property and equipment	—			23
Other	(7		)	(3		)
Net cash used by investing activities	(265		)	(215		)
Cash flows from financing activities:
Dividend paid	(700		)	—
Net cash used by financing activities	(700		)	—
Net increase (decrease) in cash	(1,172		)	1,276
Cash, beginning of year	1,895			619
Cash, end of year	€	723		€	1,895

Cash paid for:
Income taxes	€	162		€	34

See notes to consolidated financial statements

CARD CASINOS AUSTRIA RESEARCH & DEVELOPMENT GMBH

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Euros in thousands)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of business: CARD Casinos Austria Research & Development GmbH develops and supplies innovative casino products. These products include one2sixÒ, a continuous shuffler that accommodates up to six decks of cards and can be used for many casino card games, Shuffle StarÔ, Chipmaster, a roulette chip sorting device, and a range of other products. Our products are sold worldwide, mainly in Europe and are manufactured by a third party contractor in Salzburg, Austria.

For the years presented, we were a limited liability company and wholly-owned subsidiary of Casinos Austria AG, Vienna registered under the name CARD Casinos Austria Research and Development GmbH. Accordingly, we were a related party of Casinos Austria AG and its affiliated companies. Pursuant to a shareholder resolution dated April 22, 2004, we were transformed into an Austrian limited partnership (GmbH & Co KG). The partnership consists of a GmbH as general, managing partner with unlimited liability and a limited partner with liability limited to his contribution registered in the commercial register.

On May 13, 2004, with an effective date of May 1, 2004, Shuffle Master, Inc., a public company headquartered in Las Vegas, NV, acquired all partnership interest in us from Casinos Austria AG and its affiliate, and subsequently changed our name to Shuffle Master GmbH & Co KG.

Principles of consolidation: Our consolidated financial statements include the accounts of CARD Casinos Austria Research & Development GmbH and our wholly owned subsidiaries CARD Casinos Austria Research and Development Limited, Auckland, New Zealand and CARD LLC, Reno, Nevada, both founded in 2003. All significant inter-company accounts and transactions have been eliminated.

Use of estimates: We use estimates and assumptions in preparing financial statements in accordance with accounting principles generally accepted in the United States of America. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenue and expenses. Actual results could vary from the estimates that were used.

Accounts receivable: We record provisions for credit losses and bad debts that could result from the inability of our customers to make required payments. These provisions are estimated based on our historical experience and specific customer accounts. As of December 31, 2003 and 2002, we estimated that our accounts receivable were fully collectible, and as such, no provision was recorded.

Tax receivables: Tax receivables include value-added tax receivables and other receivables due from tax authorities.

Inventories: Inventories are stated at the lower of cost or market. We provide allowances for estimated obsolete or unsalable inventory based on assumptions about future demand for our products and market conditions.

Revenue recognition: In general, we recognize revenue when the following criteria are met: persuasive evidence of an arrangement between our customer and us exists, shipment has occurred or services have been rendered, the sales price is fixed or determinable, and collectibility is reasonably assured. We generate sales revenue through the sale of equipment. Revenue from the sale of equipment is recorded upon shipment. Revenue on services is recognized when rendered.

Research and development costs: We incur research and development expenses to develop our new and next-generation products, which are expensed as incurred. Our research and development activities consist of internal resources and the utilization of an outside vendor.

Concentration of risk: Financial instruments that have potential concentrations of credit risk include cash and accounts receivable. We place our cash with high credit quality institutions. Accounts receivable have concentration of credit risk because they all relate to our customers in the gaming industry. Sales to customers sometimes exceed 10% of our then outstanding accounts receivable balance. At December 31, 2003, four customer balances, which were subsequently collected, accounted for 82% of our accounts receivable.

Property and equipment: Property and equipment is stated at cost. Depreciation is recorded using the straight-line method over the estimated useful life of the assets of three to eight years. We estimate useful lives for our long-lived assets based on historical experience, estimates of products’ commercial lives and the likelihood of technological obsolescence.

Intangible assets: Intangible assets include purchased patents and software licenses. All of our intangible assets are amortized over a period of two to five years. Amortization is calculated using the straight-line method. See Note 3.

Impairment of long-lived assets: Long-lived assets include property and equipment, intangible assets and other non-current assets. We assess the recoverability of long-lived assets annually or when circumstances indicate that the carrying amount of an asset may not be fully recoverable. If undiscounted expected cash flows to be generated by a long-lived asset or asset group were less than its carrying amount, we would record an impairment expense to write down the long-lived asset or asset group to its estimated fair value. Fair value is determined based on discounted expected future cash flows. No asset impairments were recorded in any year presented.

Foreign currency translation: Our foreign subsidiaries’ asset and liability accounts are translated into Euro amounts at the year-end exchange rates. Revenue and expense accounts are translated at the average exchange rates for the year. Transaction gains and losses, the amounts of which are immaterial for all periods presented, are included in other income, net.

Recently issued or adopted accounting standard: In November 2002, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 expands the disclosures required by guarantors for obligations under certain types of guarantees and requires initial recognition at fair value of a liability for such guarantees. The adoption of these requirements did not have a material impact on our results of operations or financial position.

The Emerging Issues Task Force (“EITF”) recently reached a consensus on issues relating to the accounting for multiple element arrangements: Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables,” and Issue No. 03-05, “Applicability of AICPA SOP 97-2 to Non-Software Deliverables in an Arrangement Containing More Than Incidental Software.” The consensus opinion reached in EITF No. 03-05 clarifies the guidance in EITF No. 00-21 and was reached on July 31, 2003. The consensus opinions are consistent with our revenue recognition policies.

2. OTHER BALANCE SHEET DATA

The following provides additional disclosure for selected balance sheet accounts as of December 31:

	2003			2002
Inventories:
Finished goods	€	1,076		€	368
Less: allowance for inventory obsolescence	(137		)	(47		)
	€	939		€	321

Property and equipment, net:
Trial products	€	408		€	194
Office furniture and computer equipment	27			22
Production equipment	179			179
	614			395
Less: accumulated depreciation	(336		)	(197		)
	€	278		€	198

Trial products include products that have been provided to customers for demonstration purposes. Once a product is placed at a customer for trial, the respective value is transferred from inventories to property and equipment and depreciated over its expected useful life.

All of our products are manufactured by a single supplier. In the event that we cease our relationship with this supplier, we would be required to identify an alternative supplier or obtain capacity to manufacture our products internally.

All of our recorded property and equipment is subject to depreciation. Depreciation expense was € 147 and € 88 in 2003 and 2002, respectively.

3. INTANGIBLE ASSETS

Intangible assets: All of our recorded intangible assets are subject to amortization. Amortization expense was € 4 and zero for the years ended December 31, 2003 and 2002, respectively. Intangible assets are comprised of the following at December 31:

	2003			2002

Patents and software licenses	€	26		€	7
Less: accumulated amortization	(4		)	—
Intangible assets, net	€	22		€	7

Estimated amortization of intangible assets at December 31 is as follows:

Year ending December 31,
2004	€	7
2005	7
2006	7
2007	1
	€	22

4. INCOME TAXES

We are subject to corporate income tax in Austria at a rate of 34%. An act reducing the corporate income tax rate to 25% effective for fiscal years beginning 2005 was enacted by the Austrian government in June 2004.

Deferred income taxes are recorded to reflect the income tax consequences in future years between the financial reporting and income tax bases of assets and liabilities using current tax laws and statutory rates. Income tax expense is the sum of the tax currently payable and the change in deferred taxes during the year.

The components of the provision for income taxes are as follows for the years ended December 31:

	2003			2002
Current:
Domestic	€	309		€	272
Deferred:
Domestic	(121		)	56
Foreign	(23		)	—
	(144		)	56
	€	165		€	328

Deferred tax assets (liabilities) consisted of the following as of December 31:

	2003			2002
Current deferred tax asset (liabilities):
Inventory allowance	€	55		€	42
Accrued expenses	—			(100		)
Other	(3		)	—
	€	52		€	(58	)
Non-current deferred tax assets (liabilities):
Tax loss carry forwards	€	43		€	—
Valuation allowance	(20		)	—
Research and development cost	61			42
Other	(1		)	6
	€	83		€	48

Tax loss carryforwards:
CARD Ltd., Auckland, New Zealand	€	69		€	—
CARD LLC, Nevada, USA	57			—
	€	126		€	—

New Zealand tax losses can be carried forward indefinitely provided there is shareholder continuity. Our New Zealand taxable income prior to being acquired by Shuffle Master, Inc. on May 13, 2004, is not sufficient to fully utilize our New Zealand tax loss carryforwards. Accordingly, we recognized a valuation allowance of € 20 and zero as of December 31, 2003 and 2002, respectively, to offset our deferred tax assets.

The reconciliation of the corporate income tax rate to the effective income tax rate for the years ended December 31 is as follows:

	2003		2002

Corporate income tax	34.0	%	34.0	%

Valuation allowance for tax loss carryforwards	4.6	%	0.0	%
Non-taxable income	(1.5	)%	0.0	%
Non-deductable expenses	0.9	%	0.0	%
Tax free reversal of accrued severance	0.0	%	(0.3	)%

Effective tax rate	38.0	%	33.7	%

5. SHAREHOLDER’S EQUITY

Capital stock: For the years presented, our legal form was a limited liability corporation (GmbH) according to the Austrian corporate law. The capital stock of € 1,000 was held by the only shareholder Casinos Austria AG.

For the year ended December 31, 2003, we paid a cash dividend in the amount of € 700 to our shareholder Casinos Austria AG.

6. SALES

The following provides additional disclosure for sales by geographic region for the years ended December 31:

	2003		2002

Europe	€	5,582	€	5,848
South Africa	328		—
Malaysia	290		—
Other	96		28
	€	6,296	€	5,876

Sales to non-related customers exceeding 10% of our total sales amounted to € 1,325 and € 949 for the years ended December 31, 2003 and 2002, respectively.

7. RELATED PARTY TRANSACTIONS

For the years presented, we were related to Casinos Austria AG and its affiliated companies. Sales from products and services to Casinos Austria AG affiliated companies were € 596 and € 732 for the years ended December 31, 2003 and 2002, respectively.

In addition, Casinos Austria AG provided us with management, research and development personnel, administrative services and facilities. Aggregate costs allocated to us were € 555 and € 701 for the years ended December 31, 2003 and 2002, respectively.

8. COMMITMENTS AND CONTINGENCIES

Legal proceedings: We and our affiliates have been involved in litigation with Shuffle Master, Inc. during the years ended December 31, 2003 and 2002. In connection with the acquisition of us by Shuffle Master, Inc. on May 13, 2004, all litigation between the companies will be terminated.

General and administrative expenses include legal fees related to litigation with Shuffle Master, Inc. of € 1,269 and € 141 for the years ended December 31, 2003 and 2002, respectively.

9. SUBSEQUENT EVENTS

Pension commitments: In April 2004, we formalized our defined contribution pension agreements with four individual employees. We pay contributions to an external pension fund administered by ÖPAG Pensionskassen AG (“ÖPAG”). Once the contributions have been paid, we have no further obligation. The contributions constitute a net periodic cost for the period in which they are due.

We also committed to a defined contribution pension agreement with a managing director, which is valid from May 1, 2004. We pay contributions to an external fund which is also administered by ÖPAG. In connection with our acquisition by Shuffle Master, Inc., we funded € 150 to the plan representing benefits for prior years of service to Casinos Austria AG.

CARD CASINOS AUSTRIA RESEARCH & DEVELOPMENT GMBH

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited, Euros in thousands)

	Three Months Ended March 31,
	2004			2003

Sales	€	1,378		€	1,655
Sales to affiliates and related parties	200			253
Total sales	1,578			1,908

Costs and expenses:
Cost of sales	758			777
Selling	324			233
General and administrative	588			266
Research and development	87			75
Total costs and expenses	1,757			1,351

Income (loss) from operations	(179		)	557
Other income (expense), net	(7		)	6
Income (loss) before income taxes	(186		)	563
Provision (benefit) for income taxes	(60		)	188
Net income (loss)	€	(126	)	€	375

See notes to condensed consolidated financial statements

CARD CASINOS AUSTRIA RESEARCH & DEVELOPMENT GMBH

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, Euros in thousands)

	March 31, 2004		December 31, 2003

ASSETS

Current assets:
Cash	€	491	€	723
Accounts receivable	465		903
Accounts receivable from affiliates and related parties	94		224
Tax receivables	112		171
Inventories	923		939
Prepaid expenses and deferred charges	7		42
Deferred income taxes	87		52
Other current assets	51		33
Total current assets	2,230		3,087
Property and equipment, net	283		278
Intangible assets, net	20		22
Deferred income taxes	109		83
Other assets	13		13
Total assets	€	2,655	€	3,483

LIABILITIES AND SHAREHOLDER’S EQUITY

Current liabilities:
Accounts payable	€	527	€	723
Accounts payable to affiliates and related parties	275		728
Accrued payroll and employee benefits	94		242
Customer deposits and unearned revenue	250		84
Income taxes payable	236		309
Total current liabilities	1,382		2,086
Other non-current liabilities	21		19
Total liabilities	1,403		2,105
Contingencies
Shareholder’s equity:
Capital stock	1,000		1,000
Retained earnings	252		378
Total shareholder’s equity	1,252		1,378
Total liabilities and shareholder’s equity	€	2,655	€	3,483

See notes to condensed consolidated financial statements

CARD CASINOS AUSTRIA RESEARCH & DEVELOPMENT GMBH

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, Euros in thousands)

	Three Months Ended March 31,
	2004			2003
Cash flows from operating activities:
Net income (loss)	€	(126	)	€	375
Adjustments to reconcile net income (loss) to cash used by operating activities:
Depreciation and amortization	27			27
Provision for inventory obsolescence	41			25
Deferred income taxes	(61		)	(13		)
Changes in operating assets and liabilities:
Accounts receivable	568			(149		)
Tax receivables	59			58
Inventories	(25		)	(272		)
Prepaid expenses and deferred charges	35			42
Other current assets	(18		)	(19		)
Accounts payable	(669		)	(748		)
Receipts (payments) from (to) related party	21			(190		)
Payrolls and employee benefits	(147		)	48
Customer deposits and unearned revenue	166			(15		)
Income taxes payable	(73		)	200
Net cash used by operating activities	(202		)	(631		)
Cash flows from investing activities:
Purchases of property and equipment	(30		)	(14		)
Purchases of intangible assets	—			(1		)
Net cash used by investing activities	(30		)	(15		)
Cash flows from financing activities	—			—
Net decrease in cash	(232		)	(646		)
Cash, beginning of period	723			1,895
Cash, end of period	€	491		€	1,249

See notes to condensed consolidated financial statements

CARD CASINOS AUSTRIA RESEARCH & DEVELOPMENT GMBH

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Euros in thousands)

1. DESCRIPTION OF BUSINESS AND INTERIM BASIS OF PRESENTATION

For the periods presented, we were a limited liability company and wholly-owned subsidiary of Casinos Austria AG, Vienna registered under the name CARD Casinos Austria Research and Development GmbH. Accordingly, we were a related party of Casinos Austria AG and its affiliated companies. Pursuant to a shareholder resolution dated April 22, 2004, we were transformed into an Austrian limited partnership (GmbH & Co KG). The partnership consists of a GmbH as general, managing partner with unlimited liability and a limited partner with liability limited to his contribution registered in the commercial register.

Basis of presentation: The condensed consolidated financial statements of CARD Casinos Austria Research & Development GmbH as of March 31, 2004, and for the three month periods ended March 31, 2004 and 2003, are unaudited, but, in the opinion of management, include all adjustments (consisting only of normal adjustments) necessary for a fair presentation of the financial results for the interim periods. Our results of operations for the three month period ended March 31, 2004 are not necessarily indicative of the results to be expected for the year ending December 31, 2004. These interim statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2003.

Principles of consolidation: Our condensed consolidated financial statements include the accounts of CARD Casinos Austria Research & Development GmbH and our wholly owned subsidiaries CARD Casinos Austria Research and Development Limited, Auckland and CARD LLC, Reno, Nevada, both founded in 2003. All significant inter-company accounts and transactions have been eliminated.

2. OTHER BALANCE SHEET DATA

The following provides additional disclosure for selected balance sheet accounts:

	March 31, 2004			December 31, 2003
Inventories:
Finished goods	€	1,098		€	1,076
Less: allowance for inventory obsolescence	(175		)	(137		)
	€	923		€	939

Property and equipment, net:
Trial products	€	364		€	336
Operating lease equipment	72			72
Office furniture and computer equipment	29			27
Production equipment	179			179
	644			614
Less: accumulated depreciation	(361		)	(336		)
	€	283		€	278

All of our recorded property and equipment is subject to depreciation. Depreciation expense was € 25 and € 26 for the three month periods ended March 31, 2004 and 2003, respectively.

3. INTANGIBLE ASSETS

Intangible assets: All of our recorded intangible assets are subject to amortization. Amortization expense was € 2 and € 1 for the three month periods ended March 31, 2004 and 2003, respectively. Intangible assets are comprised of the following:

	March 31, 2004			December 31, 2003

Patents and software licenses	€	26		€	26
Less: accumulated amortization	(6		)	(4		)
Intangible assets, net	€	20		€	22

4. SHAREHOLDER’S EQUITY

Capital stock: For the periods presented, our legal form was a limited liability corporation (GmbH) according to the Austrian corporate law. The capital stock of € 1,000 was held by the only shareholder Casinos Austria AG.

5. RELATED PARTY TRANSACTIONS

For the periods presented, we were related to Casinos Austria AG and its affiliated companies. Sales from products and services to Casinos Austria AG affiliated companies were € 200 and € 253 for the three month periods ended March 31, 2004 and 2003, respectively.

In addition, Casinos Austria AG provided us with management, research and development personnel, administrative services and facilities. Aggregate costs allocated to us were € 142 and € 150 for the three month periods ended March 31, 2004 and 2003, respectively.

6. COMMITMENTS AND CONTINGENCIES

General and administrative expenses include legal fees related to litigation with Shuffle Master, Inc. of € 471 and € 70 for the three month periods ended March 31, 2004 and 2003, respectively.

7. SUBSEQUENT EVENTS

Austrian tax law: We are subject to corporate income tax in Austria at a rate of 34%. An act reducing the corporate income tax rate to 25% effective for fiscal years beginning 2005 was enacted by Austrian Government in June 2004.

EX-99.2 4 a04-8238_1ex99d2.htm EX-99.2

Exhibit 99.2

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

On May 13, 2004, Shuffle Master, Inc. and its subsidiaries (“Shuffle Master” or the “Company”) acquired a 100% ownership interest in CARD Casinos Austria Research & Development GmbH & Co KG and its subsidiaries (“CARD”) from Casinos Austria AG and its affiliate. The purchase price, paid at closing, consisted of a Euro-denominated cash payment of €25,935,000 and the issuance of 767,076 shares of the Company’s common stock. The cash payment was funded with a partial use of proceeds from the Company’s $150,000,000 issuance, in April 2004, of contingent convertible senior notes. The acquisition is being accounted for using the purchase method of accounting.

The following unaudited pro forma combined financial statements have been prepared from the historical financial statements of Shuffle Master and CARD. The operations of CARD for the 12 month period ended September 30, 2003 have been combined with Shuffle Master’s operations for the fiscal year ended October 31, 2003 and the operations of CARD for the six month period ended March 31, 2004 have been combined with Shuffle Master’s operations for the six month period ended April 30, 2004. The pro forma combined statements of income give effect to the combination as if it had occurred on November 1, 2002. The pro forma combined balance sheet gives effect to the combination as if it had occurred on April 30, 2004. The pro forma adjustments are described in the accompanying notes presented on the following pages.

Under the purchase method of accounting, the purchase price is allocated to assets acquired and liabilities assumed based on their relative fair values, with the excess recorded as goodwill. These unaudited pro forma combined financial statements reflect preliminary estimates of the fair values of the purchase price, assets acquired and liabilities assumed. The Company is currently reviewing these preliminary estimates, including valuation studies for intangible assets, and evaluating its integration plans. The final determination of the purchase price allocation may differ from the amounts assumed in these unaudited pro forma combined financial statements. There can be no assurances given that any adjustments will not be material.

The unaudited pro forma combined financial statements are not necessarily indicative of what the financial position or results of operations would have been if the combination had occurred on the above-mentioned dates. Additionally, they are not indicative of future results of operations or financial position and do not reflect any synergies or other changes that may occur as a result of the acquisition. The unaudited pro forma combined financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended October 31, 2003, included as exhibit 99.1 to its Current Report dated April 15, 2004; the Company’s unaudited condensed consolidated financial statements for the six month period ended April 30, 2004 included in its Quarterly Report for the quarter ended April 30, 2004; and CARD’s audited financial statements for the year ended December 31, 2003, included as Exhibit 99.1 herein.

PRO FORMA COMBINED BALANCE SHEET

(Unaudited, in thousands)

	April 30, 2004			March 31, 2004					April 30, 2004
	Shuffle Master, Inc.			CARD		Pro Forma Adjustments			Pro Forma Combined
ASSETS

Current assets:
Cash and cash equivalents	$	57,472		$	589	$	(31,421	)(a)	$	26,640
Investments	27,214			—		—			27,214
Accounts receivable, net	8,989			670		—			9,659
Investment in sales-type leases, net	3,110			—		—			3,110
Inventories	5,465			1,105		—			6,570
Prepaid income taxes	10,361			—		—			10,361
Deferred income taxes	781			104		338		(a)	1,223
Other current assets	829			204		—			1,033
Total current assets	114,221			2,672		(31,083		)	85,810
Investment in sales-type leases, net	5,123			—		—			5,123
Products leased and held for lease, net	4,907			—		—			4,907
Property and equipment, net	1,644			340		—			1,984
Intangible assets, net	21,948			24		27,321		(a)	49,293
Goodwill, net	3,664			—		28,464		(a)	32,128
Deferred income taxes	—			131		—			131
Other assets	7,548			16		(651		)(a)	6,913
Total assets	$	159,055		$	3,183	$	24,051		$	186,289

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	3,001		$	961	$	—		$	3,962
Accrued liabilities	3,549			396		995		(a)	4,940
Customer deposits and unearned revenue	2,255			299		—			2,554
Note payable and current portion of long-term liabilities	4,105			—		—			4,105
Total current liabilities	12,910			1,656		995			15,561
Long-term liabilities, net of current portion	157,866			26		—			157,892
Deferred income taxes	141			—		—			141
Total liabilities	170,917			1,682		995			173,594
Contingencies
Common stock, subject to put right						24,557		(a)	24,557
Shareholders’ equity:
Preferred stock	—			—		—			—
Common stock	229			1,198		(1,198		)(b)	229
Additional paid-in capital	—			—		—			—
Retained earnings (deficit)	(12,091		)	303		(303		)(b)	(12,091		)
Total shareholders’ equity (deficit)	(11,862		)	1,501		(1,501)			(11,862)
Total liabilities and shareholders’ equity	$	159,055		$	3,183	$	24,051		$	186,289

See notes to unaudited pro forma combined financial statements

PRO FORMA COMBINED STATEMENT OF INCOME

(Unaudited, in thousands, except per share amounts)

	Six Month Period Ended
	April 30, 2004			March 31, 2004						April 30, 2004
	Shuffle Master, Inc.			CARD			Pro Forma Adjustments			Pro Forma Combined

Revenue:
Utility products leases	$	4,755		$	—		$	—		$	4,755
Utility products sales and service	5,541			4,316			—			9,857
Entertainment products leases and royalties	6,016			—			—			6,016
Entertainment products sales and service	3,799			—			—			3,799
Other	45			—			—			45
Total revenue	20,156			4,316			—			24,472

Costs and expenses:
Cost of leases and royalties	1,726			—			—			1,726
Cost of sales and service	2,115			2,088			451		(c)	4,654
Selling, general and administrative	5,732			2,599			34		(c)	8,365
Research and development	1,770			224			—			1,994
Total costs and expenses	11,343			4,911			485			16,739

Income (loss) from operations	8,813			(595		)	(485		)	7,733
Other expense	(607		)	(15		)	(205		)(d)	(827		)
Income (loss) from continuing operations before tax	8,206			(610		)	(690		)	6,906
Provision for income tax expense (benefit)	2,872			(220		)	(249		)(e)	2,403
Income (loss) from continuing operations	5,334			(390		)	(441		)	4,503

Basic earnings per share from continuing operations	$	0.21								$	0.18
Diluted earnings per share from continuing operations	$	0.21								$	0.18

Weighted average shares outstanding:
Basic	24,856						767			25,623
Diluted	25,761						767			26,528

See notes to unaudited pro forma combined financial statements

	Year Ended
	October 31, 2003		September 30, 2003					October 31, 2003
	Shuffle Master, Inc.		CARD		Pro Forma Adjustments			Pro Forma Combined

Revenue:
Utility products leases	$	17,599	$	—	$	—		$	17,599
Utility products sales and service	15,493		7,168		—			22,661
Entertainment products leases and royalties	21,028		—		—			21,028
Entertainment products sales and service	4,123		—		—			4,123
Other	108		—		—			108
Total revenue	58,351		7,168		—			65,519

Costs and expenses:
Cost of leases and royalties	6,539		—		—			6,539
Cost of sales and service	5,060		3,446		917		(c)	9,423
Selling, general and administrative	15,788		2,084		67		(c)	17,939
Research and development	4,183		695		—			4,878
Total costs and expenses	31,570		6,225		984			38,779

Income from operations	26,781		943		(984		)	26,740
Other income (expense)	256		21		(434		)(d)	(157		)
Income from continuing operations before tax	27,037		964		(1,418		)	26,583
Provision for income taxes	9,458		360		(530		)(e)	9,288
Income from continuing operations	17,579		604		(888		)	17,295

Basic earnings per share from continuing operations	$	0.70						$	0.67
Diluted earnings per share from continuing operations	$	0.68						$	0.65

Weighted average shares outstanding:
Basic	25,085				767			25,852
Diluted	25,775				767			26,542

See notes to unaudited pro forma combined financial statements

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

(Unaudited, in thousands except shares)

(a) Adjustment to record the acquisition of CARD and the preliminary allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed.

The acquisition is being accounted for using the purchase method of accounting. Consideration to the seller consists of a Euro-denominated cash payment of € 25,935 and the issuance of 767,076 shares of the Company’s common stock. The Company is required to register the shares by November 17, 2004. Prior to the effective registration of the stock, Casinos Austria has the right to require the Company to purchase back the 767,076 shares at an aggregate purchase price of € 15,813,000. The pro forma balance sheet classification of these shares assumed that an effective registration has not yet occurred. Once registered, the amount will be reclassified as equity and Casinos Austria’s right to require the Company to repurchase the shares will terminate. In addition, the Company estimates its total direct acquisition costs, consisting primarily of legal and due diligence fees, to be approximately $1,284. Of this amount, $651 was incurred prior April 30, 2004 and was capitalized as other assets. The estimated total purchase price is comprised of the following:

Cash	$	30,788
Common stock of Shuffle Master, Inc.	24,557
Other direct acquisition costs	1,284
Total purchase price	$	56,629

The preliminary pro forma allocation of the purchase price, which is subject to change based on a final valuation of the assets acquired and liabilities assumed and management’s evaluation of its integration plans, is comprised of the following:

Historical book value of CARD net assets as of March 31, 2004	$	1,501
Estimated fair value adjustments relating to:
Deferred income taxes	338
Intangible assets, average life of 7 years	27,321
Goodwill	28,464
Accrued liabilities	(995		)
	$	56,629

Intangible assets relate primarily to acquired products and their related intellectual property, primarily the one2six shuffler and the Easy Chipper chip sorting machine, and a trademark. The values assigned to acquired products will be amortized over their estimated useful lives on a pro rata basis to the associated revenues. The trademark will be amortized over its estimated useful life using the straight-line method.

Accrued liabilities is comprised of vendor related obligations of $636 and an obligation to the seller to provide up to $359 of product at no charge. The deferred tax asset of $338 reflects the timing difference for book and tax purposes of these accrued liabilities.

(b) Adjustment to eliminate the historical equity of CARD.

(c) Adjustment to record amortization of intangible assets based on the method described above assuming these assets were acquired on November 1, 2002.

(d) In April 2004, the Company issued $150,000 of contingent convertible senior notes due 2024 (the “Notes”) through a private placement under Rule 144A of the Securities Act of 1933. The Notes are unsecured and bear interest at a fixed rate of 1.25% per annum. The Company used $30,788 of the proceeds from the issuance of the Notes to fund the cash component of the CARD purchase price. The pro forma adjustment reflects a pro rata allocation of interest expense and amortization of debt issuance costs assuming the Notes had been issued on November 1, 2002.

(e) Adjustment to record the tax effect of intangible asset amortization and interest expense based on CARD’s historical effective tax rate.