x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended January 31, 2011
|
|
OR
|
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from to
|
Minnesota
|
41-1448495
|
|
(State or Other Jurisdiction
|
(IRS Employer Identification No.)
|
|
of Incorporation or Organization)
|
||
1106 Palms Airport Drive, Las Vegas
|
NV
|
89119
|
(Address of Principal
|
(State)
|
(Zip Code)
|
Executive Offices)
|
Large accelerated filer o
|
Accelerated filer x
|
Non-accelerated filer o
(Do not check if a smaller reporting company)
|
Smaller reporting company o
|
|
Page
|
|
PART I—FINANCIAL INFORMATION | ||
Item 1.
|
Financial Statements (unaudited):
|
|
|
Condensed Consolidated Statements of Operations for the Three Months ended January 31, 2011 and 2010
|
3
|
|
Condensed Consolidated Balance Sheets as of January 31, 2011 and October 31, 2010
|
4
|
|
Condensed Consolidated Statements of Cash Flows for the Three Months ended January 31, 2011 and 2010
|
5
|
|
Notes to Condensed Consolidated Financial Statements
|
6
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
24
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
43
|
Item 4.
|
Controls and Procedures
|
43
|
PART II—OTHER INFORMATION | ||
Item 1.
|
Legal Proceedings
|
44
|
Item 1A.
|
Risk Factors
|
44
|
Item 2.
|
Unregistered Sale of Equity Securities and Use of Proceeds
|
44
|
Item 3.
|
Defaults Upon Senior Securities
|
44
|
Item 4.
|
(Removed and Reserved)
|
44
|
Item 5.
|
Other Information
|
44
|
Item 6.
|
Exhibits
|
44
|
Signatures
|
|
45 |
Three Months Ended
|
||||||||
January 31,
|
||||||||
2011
|
2010
|
|||||||
Revenue:
|
||||||||
Product leases and royalties
|
$ | 23,576 | $ | 20,493 | ||||
Product sales and service
|
20,239 | 19,843 | ||||||
Total revenue
|
43,815 | 40,336 | ||||||
Costs and expenses:
|
||||||||
Cost of leases and royalties
|
7,182 | 6,304 | ||||||
Cost of sales and service
|
7,465 | 9,185 | ||||||
Gross profit
|
29,168 | 24,847 | ||||||
Selling, general and administrative
|
16,201 | 14,357 | ||||||
Research and development
|
5,916 | 4,962 | ||||||
Total costs and expenses
|
36,764 | 34,808 | ||||||
Income from operations
|
7,051 | 5,528 | ||||||
Other income (expense):
|
||||||||
Interest income
|
126 | 138 | ||||||
Interest expense
|
(701 | ) | (1,056 | ) | ||||
Other, net
|
157 | 654 | ||||||
Total other income (expense)
|
(418 | ) | (264 | ) | ||||
Income from operations before tax
|
6,633 | 5,264 | ||||||
Income tax provision
|
1,829 | 1,585 | ||||||
Net income
|
$ | 4,804 | $ | 3,679 | ||||
Basic and diluted earnings per share:
|
$ | 0.09 | $ | 0.07 | ||||
Weighted average shares outstanding:
|
||||||||
Basic
|
54,132 | 53,216 | ||||||
Diluted
|
54,895 | 54,056 |
January 31,
|
October 31,
|
|||||||
2011
|
2010
|
|||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$ | 18,099 | $ | 9,988 | ||||
Accounts receivable, net of allowance for bad debts of $502 and $466
|
28,737 | 41,176 | ||||||
Investment in sales-type leases and notes receivable, net of allowance for bad debts of $108 and $113
|
2,190 | 1,806 | ||||||
Inventories
|
32,234 | 27,351 | ||||||
Prepaid income taxes
|
7,041 | 7,086 | ||||||
Deferred income taxes
|
5,075 | 5,091 | ||||||
Other current assets
|
14,258 | 14,969 | ||||||
Total current assets
|
107,634 | 107,467 | ||||||
Investment in sales-type leases and notes receivable, net of current portion
|
817 | 1,104 | ||||||
Products leased and held for lease, net
|
32,911 | 31,975 | ||||||
Property and equipment, net
|
13,006 | 12,642 | ||||||
Intangible assets, net
|
69,701 | 64,144 | ||||||
Goodwill
|
81,052 | 75,932 | ||||||
Deferred income taxes
|
6,776 | 7,523 | ||||||
Other assets
|
3,078 | 3,173 | ||||||
Total assets
|
$ | 314,975 | $ | 303,960 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
|
$ | 5,396 | $ | 7,013 | ||||
Accrued liabilities and other current liabilities
|
24,080 | 34,762 | ||||||
Deferred income taxes, current
|
115 | 116 | ||||||
Customer deposits
|
3,204 | 2,973 | ||||||
Income tax payable
|
184 | 74 | ||||||
Deferred revenue
|
5,244 | 3,901 | ||||||
Total current liabilities
|
38,223 | 48,839 | ||||||
Long-term debt
|
79,781 | 66,262 | ||||||
Other long-term liabilities
|
2,512 | 2,641 | ||||||
Deferred income taxes
|
69 | 70 | ||||||
Total liabilities
|
120,585 | 117,812 | ||||||
Commitments and Contingencies (See Note 12)
|
||||||||
Shareholders' equity:
|
||||||||
Common stock, $0.01 par value; 151,368 shares authorized; 54,013 and 53,650 shares issued and outstanding
|
540 | 536 | ||||||
Additional paid-in capital
|
111,319 | 108,705 | ||||||
Retained earnings
|
54,052 | 49,248 | ||||||
Accumulated other comprehensive income
|
28,479 | 27,659 | ||||||
Total shareholders' equity
|
194,390 | 186,148 | ||||||
Total liabilities and shareholders' equity
|
$ | 314,975 | $ | 303,960 |
Three Months Ended
|
||||||||
January 31,
|
||||||||
2011
|
2010
|
|||||||
Cash flows from operating activities:
|
||||||||
Net income (loss)
|
$ | 4,804 | $ | 3,679 | ||||
Adjustments to reconcile net income (loss) to cash provided by operating activities:
|
||||||||
Depreciation and amortization
|
5,761 | 6,125 | ||||||
Amortization of debt issuance costs
|
119 | 261 | ||||||
Share-based compensation
|
735 | 1,008 | ||||||
Provision for bad debts
|
98 | 158 | ||||||
Write-down for inventory obsolescence
|
- | 267 | ||||||
Gain on sale of leased assets
|
(1,501 | ) | (1,530 | ) | ||||
Loss (gain) on sale of assets
|
59 | (49 | ) | |||||
Excess benefit from exercise of stock options
|
(600 | ) | - | |||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable
|
12,037 | 13,707 | ||||||
Investment in sales-type leases and notes receivable
|
287 | (401 | ) | |||||
Inventories
|
(4,843 | ) | (1,456 | ) | ||||
Accounts payable and accrued liabilities
|
(12,308 | ) | (8,752 | ) | ||||
Customer deposits and deferred revenue
|
1,565 | (1,485 | ) | |||||
Income taxes payable, net of stock option exercises
|
105 | (28 | ) | |||||
Deferred income taxes
|
1,224 | 36 | ||||||
Prepaid income taxes
|
47 | 1,283 | ||||||
Other | 698 | (984 | ) | |||||
Net cash provided by operating activities
|
8,287 | 11,839 | ||||||
Cash flows from investing activities:
|
||||||||
Proceeds from sale of leased assets
|
2,086 | 1,796 | ||||||
Proceeds from sale of assets
|
47 | 50 | ||||||
Payments for products leased and held for lease
|
(4,277 | ) | (5,026 | ) | ||||
Purchases of property and equipment
|
(930 | ) | (729 | ) | ||||
Purchases of intangible assets
|
(4,910 | ) | (1,576 | ) | ||||
Acquisition of business
|
(6,499 | ) | - | |||||
Other | (221 | ) | (268 | ) | ||||
Net cash used in investing activities
|
(14,704 | ) | (5,753 | ) | ||||
Cash flows from financing activities:
|
||||||||
Proceeds from Revolver borrowings
|
16,501 | - | ||||||
Debt payments on Revolver
|
(4,000 | ) | - | |||||
Proceeds from Deutsche Bank Senior Secured Credit Facility
|
- | 8,245 | ||||||
Debt payments on Deutsche Bank Senior Secured Credit Facility
|
- | (1,000 | ) | |||||
Debt payments on Term Loan
|
- | (4,332 | ) | |||||
Proceeds from issuances of common stock, net
|
1,437 | - | ||||||
Excess benefit from exercise of stock options
|
600 | - | ||||||
Other | (14 | ) | (83 | ) | ||||
Net cash provided by financing activities
|
14,524 | 2,830 | ||||||
Effect of exchange rate changes on cash and cash equivalents
|
4 | 14 | ||||||
Net increase in cash and cash equivalents
|
8,111 | 8,930 | ||||||
Cash and cash equivalents, beginning of period
|
9,988 | 7,840 | ||||||
Cash and cash equivalents, end of period
|
$ | 18,099 | $ | 16,770 |
Accounts Receivable as of January 31, 2011
|
||||||||||||
Ending Balance
|
Ending Balance Individually Evaluated For Impairment
|
Ending Balance Collectively Evaluated For Impairment
|
||||||||||
(In thousands) | ||||||||||||
Trade receivables, current
|
$ | 29,239 | $ | 8,569 | $ | 20,670 | ||||||
Investment in sales-type lease receivables, current
|
2,298 | 356 | 1,942 | |||||||||
Investment in sales-type lease receivables, non-current
|
817 | 248 | 569 | |||||||||
3,115 | 604 | 2,511 | ||||||||||
Total current
|
$ | 31,537 | $ | 8,925 | $ | 22,612 | ||||||
Total noncurrent
|
$ | 817 | $ | 248 | $ | 569 |
Allowance for Doubtful Accounts as of January 31, 2011
|
||||||||||||
Ending Balance
|
Ending Balance Individually Evaluated For Impairment
|
Ending Balance Collectively Evaluated For Impairment
|
||||||||||
(In thousands) | ||||||||||||
Trade receivables, current
|
$ | (502 | ) | $ | (308 | ) | $ | (194 | ) | |||
Investment in sales-type lease receivables, current
|
(78 | ) | (49 | ) | (29 | ) | ||||||
Investment in sales-type lease receivables, non-current
|
(30 | ) | (19 | ) | (11 | ) | ||||||
(108 | ) | (68 | ) | (40 | ) | |||||||
Total current
|
$ | (580 | ) | $ | (357 | ) | $ | (223 | ) | |||
Total noncurrent
|
$ | (30 | ) | $ | (19 | ) | $ | (11 | ) |
Allowance for Doubtful Accounts as of October 31, 2010
|
||||||||||||
Ending Balance
|
Ending Balance Individually Evaluated For Impairment
|
Ending Balance Collectively Evaluated For Impairment
|
||||||||||
(In thousands) | ||||||||||||
Trade receivables, current
|
$ | (466 | ) | $ | (254 | ) | $ | (183 | ) | |||
Investment in sales-type lease receivables, current
|
(71 | ) | (23 | ) | (48 | ) | ||||||
Investment in sales-type lease receivables, non-current
|
(42 | ) | (14 | ) | (28 | ) | ||||||
(113 | ) | (37 | ) | (76 | ) | |||||||
Total current
|
$ | (537 | ) | $ | (277 | ) | $ | (231 | ) | |||
Total noncurrent
|
$ | (42 | ) | $ | (14 | ) | $ | (28 | ) |
Age Analysis of Past Due Receivables as of January 31, 2011
|
|||||||||||||||||||||||||||
1 to 30 Days Past Due
|
31 to 60 Days Past Due
|
61 to 90 Days Past Due
|
91+ Days Past Due
|
Total Past Due
|
Current
|
Total Receivable
|
|||||||||||||||||||||
(In thousands) | |||||||||||||||||||||||||||
Trade receivables
|
$ | 5,412 | $ | 1,321 | $ | 919 | $ | 1,772 | $ | 9,424 | $ | 19,815 | $ | 29,239 | |||||||||||||
Investment in sales-type lease receivables
|
- | - | - | - | - | 3,115 | 3,115 |
·
|
persuasive evidence of an arrangement exists;
|
·
|
the price to the customer is fixed and determinable;
|
·
|
delivery has occurred and any acceptance terms have been fulfilled; and
|
·
|
collection is reasonably assured.
|
|
1.
|
the nature of credit risk inherent in our portfolio of financing receivables;
|
|
2.
|
how credit risk is analyzed to determine the allowance for credit losses; and
|
|
3.
|
changes in and reasons for changes in the allowances for credit losses.
|
January 31,
|
October 31,
|
|||||||
2011
|
2010
|
|||||||
(In thousands)
|
||||||||
Net inventories:
|
||||||||
Raw materials and component parts
|
$ | 16,048 | $ | 17,322 | ||||
Work-in-process
|
5,748 | 5,325 | ||||||
Finished goods
|
10,438 | 4,704 | ||||||
Total
|
$ | 32,234 | $ | 27,351 |
January 31,
|
October 31,
|
|||||||
2011
|
2010
|
|||||||
(In thousands)
|
||||||||
Other current assets:
|
||||||||
Deferred cost of goods sold
|
$ | 297 | $ | 311 | ||||
Other prepaid expenses
|
2,977 | 2,483 | ||||||
Insurance receivables
|
9,840 | 10,840 | ||||||
Other receivables
|
769 | 845 | ||||||
Other
|
375 | 490 | ||||||
Total
|
$ | 14,258 | $ | 14,969 |
January 31,
|
October 31,
|
|||||||
2011
|
2010
|
|||||||
(In thousands)
|
||||||||
Products leased and held for lease:
|
||||||||
Utility
|
$ | 42,768 | $ | 41,262 | ||||
Less: accumulated depreciation
|
(25,144 | ) | (24,439 | ) | ||||
Utility, net
|
17,624 | 16,823 | ||||||
Proprietary Table Games
|
4,025 | 3,997 | ||||||
Less: accumulated depreciation
|
(1,579 | ) | (2,059 | ) | ||||
Proprietary Table Games, net
|
2,446 | 1,938 | ||||||
Electronic Table Systems
|
26,282 | 25,437 | ||||||
Less: accumulated depreciation
|
(13,441 | ) | (12,223 | ) | ||||
Electronic Table Systems, net
|
12,841 | 13,214 | ||||||
Total, net
|
$ | 32,911 | $ | 31,975 |
January 31,
|
October 31,
|
|||||||
2011
|
2010
|
|||||||
(In thousands)
|
||||||||
Accrued and other current liabilities:
|
||||||||
Accrued compensation
|
$ | 8,401 | $ | 13,148 | ||||
Accrued taxes
|
891 | 1,896 | ||||||
Accrued legal fees
|
10,143 | 11,376 | ||||||
Other accrued liabilities
|
4,645 | 8,342 | ||||||
Total
|
$ | 24,080 | $ | 34,762 |
Weighted Average
|
January 31,
|
October 31,
|
|||||||
Useful Life
|
2011
|
2010
|
|||||||
(In thousands)
|
|||||||||
Amortizable intangible assets:
|
|||||||||
Patents, games and products
|
10 years
|
$ | 66,399 | $ | 64,344 | ||||
Less: accumulated amortization
|
(47,727 | ) | (46,925 | ) | |||||
18,672 | 17,419 | ||||||||
Customer relationships
|
10 years
|
24,467 | 24,299 | ||||||
Less: accumulated amortization
|
(10,278 | ) | (9,563 | ) | |||||
14,189 | 14,736 | ||||||||
Licenses and other
|
6 - 9 years
|
18,517 | 13,328 | ||||||
Less: accumulated amortization
|
(5,329 | ) | (4,667 | ) | |||||
13,188 | 8,661 | ||||||||
Total
|
$ | 46,049 | $ | 40,816 |
Proprietary
|
Electronic
|
Electronic
|
||||||||||||||||||
Activity by Segment
|
Utility
|
Table Games
|
Table Systems
|
Gaming Machines
|
Total
|
|||||||||||||||
(In thousands)
|
||||||||||||||||||||
Goodwill
|
$ | 44,135 | $ | 8,317 | $ | 33,268 | $ | 11,079 | $ | 96,799 | ||||||||||
Accumulated impairments
|
- | - | (22,137 | ) | - | (22,137 | ) | |||||||||||||
Balance as of October 31, 2009
|
$ | 44,135 | $ | 8,317 | $ | 11,131 | $ | 11,079 | $ | 74,662 | ||||||||||
Foreign currency translation adjustment
|
(1,820 | ) | - | 920 | 916 | 16 | ||||||||||||||
Other
|
245 | 1,009 | - | - | 1,254 | |||||||||||||||
Balance as of October 31, 2010
|
$ | 42,560 | $ | 9,326 | $ | 12,051 | $ | 11,995 | $ | 75,932 | ||||||||||
Foreign currency translation adjustment
|
(261 | ) | - | 181 | 180 | 100 | ||||||||||||||
Acquisition
|
4,799 | - | - | - | 4,799 | |||||||||||||||
Other
|
- | 221 | - | - | 221 | |||||||||||||||
Balance as of January 31, 2011
|
$ | 47,098 | $ | 9,547 | $ | 12,232 | $ | 12,175 | $ | 81,052 |
January 31,
|
October 31,
|
|||||||
2011
|
2010
|
|||||||
(In thousands)
|
||||||||
Revolver
|
$ | 77,946 | $ | 65,445 | ||||
Newton future consideration
|
1,033 | - | ||||||
Other long-term debt
|
802 | 817 | ||||||
Total long-term debt
|
$ | 79,781 | $ | 66,262 |
Three Months Ended
|
||||||||
January 31,
|
||||||||
2011
|
2010
|
|||||||
(In thousands) | ||||||||
Net income
|
$ | 4,804 | $ | 3,679 | ||||
Currency translation adjustment
|
820 | (5,001 | ) | |||||
Total other comprehensive income (loss)
|
$ | 5,624 | $ | (1,322 | ) |
Weighted
|
||||||||||||||||
Weighted
|
Average
|
|||||||||||||||
Average
|
Remaining
|
Aggregate
|
||||||||||||||
Exercise
|
Contractual
|
Intrinsic
|
||||||||||||||
Shares
|
Price
|
Term
|
Value
|
|||||||||||||
(In thousands, except per share amount)
|
||||||||||||||||
Outstanding at November 1, 2010
|
4,840 | $ | 13.56 | |||||||||||||
Granted
|
359 | 11.32 | ||||||||||||||
Exercised
|
(358 | ) | 4.00 | |||||||||||||
Forfeited or expired
|
(39 | ) | 7.74 | |||||||||||||
Outstanding at January 31, 2011
|
4,802 | $ | 14.15 | 5.6 | $ | 7,306 | ||||||||||
Fully vested and expected to vest at January 31, 2011
|
4,752 | $ | 14.20 | 5.6 | $ | 7,230 | ||||||||||
Exercisable at January 31, 2011
|
3,395 | $ | 15.30 | 4.5 | $ | 4,486 |
Weighted
|
||||||||||||||||
Average
|
Remaining
|
Aggregate
|
||||||||||||||
Grant-Date
|
Vesting
|
Intrinsic
|
||||||||||||||
Shares
|
Fair Value
|
Period
|
Value
|
|||||||||||||
(In thousands, except per share amount)
|
||||||||||||||||
Nonvested at November 1, 2010
|
356 | $ | 16.25 | |||||||||||||
Granted
|
238 | 11.46 | ||||||||||||||
Vested
|
(125 | ) | 15.24 | |||||||||||||
Forfeited
|
(17 | ) | 9.51 | |||||||||||||
Nonvested at January 31, 2011
|
452 | $ | 14.25 | 1.65 | $ | 4,672 | ||||||||||
Expected to vest
|
432 | $ | 14.41 | 1.60 | $ | 4,465 |
Three Months Ended
|
||||||||
January 31,
|
||||||||
2011
|
2010
|
|||||||
(In thousands)
|
||||||||
Compensation costs:
|
||||||||
Stock options
|
$ | 521 | $ | 981 | ||||
Restricted stock
|
214 | 27 | ||||||
Total compensation cost
|
$ | 735 | $ | 1,008 | ||||
Related tax benefit
|
$ | (256 | ) | $ | (313 | ) |
Three Months Ended
|
|
January 31, 2011
|
|
Option valuation assumptions:
|
|
Expected dividend yield
|
None
|
Expected volatility
|
65.0%
|
Risk-free interest rate
|
1.6%
|
Expected term
|
4.4 years
|
Three Months Ended
|
||||||||
January 31,
|
||||||||
2011
|
2010
|
|||||||
(In thousands) | ||||||||
Net income available to common shares (1)
|
$ | 4,804 | $ | 3,679 | ||||
Basic
|
||||||||
Weighted average shares
|
54,132 | 53,216 | ||||||
Diluted
|
||||||||
Weighted average shares, basic
|
54,132 | 53,216 | ||||||
Dilutive effect of options and restricted stock
|
763 | 840 | ||||||
Weighted average shares, diluted
|
54,895 | 54,056 | ||||||
Basic and diluted earnings per share
|
$ | 0.09 | $ | 0.07 | ||||
Weighted average anti-dilutive shares excluded from diluted EPS
|
3,211 | 3,011 |
Carrying Value
|
Fair Value
|
Carrying Value
|
Fair Value
|
Fair Value
|
|||||||||||||
January 31, 2011
|
January 31, 2011
|
October 31, 2010
|
October 31, 2010
|
Hierarchy
|
|||||||||||||
(In thousands) | |||||||||||||||||
Revolver
|
$ | 77,946 | $ | 75,903 | $ | 65,445 | $ | 65,445 |
Level 2
|
Three Months Ended
|
||||||||
January 31,
|
||||||||
2011
|
2010
|
|||||||
(In thousands)
|
||||||||
Revenue:
|
||||||||
Utility
|
$ | 17,361 | $ | 17,616 | ||||
Proprietary Table Games
|
11,226 | 9,035 | ||||||
Electronic Table Systems
|
8,131 | 8,375 | ||||||
Electronic Gaming Machines
|
7,097 | 5,310 | ||||||
$ | 43,815 | $ | 40,336 | |||||
Gross profit (loss):
|
||||||||
Utility
|
$ | 10,848 | $ | 10,705 | ||||
Proprietary Table Games
|
9,262 | 7,537 | ||||||
Electronic Table Systems
|
4,650 | 3,919 | ||||||
Electronic Gaming Machines
|
4,408 | 2,686 | ||||||
$ | 29,168 | $ | 24,847 | |||||
Operating income (loss):
|
||||||||
Utility
|
$ | 9,228 | $ | 8,903 | ||||
Proprietary Table Games
|
8,375 | 6,930 | ||||||
Electronic Table Systems
|
1,813 | 1,523 | ||||||
Electronic Gaming Machines
|
1,764 | 1,107 | ||||||
Unallocated Corporate
|
(14,129 | ) | (12,935 | ) | ||||
$ | 7,051 | $ | 5,528 | |||||
Depreciation and amortization:
|
||||||||
Utility
|
$ | 1,252 | $ | 2,068 | ||||
Proprietary Table Games
|
1,313 | 1,173 | ||||||
Electronic Table Systems
|
2,198 | 1,967 | ||||||
Electronic Gaming Machines
|
68 | 197 | ||||||
Unallocated Corporate
|
930 | 720 | ||||||
$ | 5,761 | $ | 6,125 | |||||
Capital expenditures:
|
||||||||
Utility
|
$ | 2,197 | $ | 3,052 | ||||
Proprietary Table Games
|
5,429 | 623 | ||||||
Electronic Table Systems
|
1,561 | 2,344 | ||||||
Electronic Gaming Machines
|
- | 878 | ||||||
Unallocated Corporate
|
930 | 434 | ||||||
$ | 10,117 | $ | 7,331 |
Three Months Ended
|
||||||||||||||||
January 31,
|
||||||||||||||||
2011
|
2010
|
|||||||||||||||
(In thousands)
|
||||||||||||||||
Revenue:
|
||||||||||||||||
United States
|
$ | 26,005 | 59.4 | % | $ | 22,490 | 55.8 | % | ||||||||
Canada
|
1,392 | 3.2 | % | 2,780 | 6.9 | % | ||||||||||
Other North America
|
768 | 1.7 | % | 655 | 1.6 | % | ||||||||||
Europe
|
1,406 | 3.2 | % | 2,142 | 5.3 | % | ||||||||||
Australia
|
10,951 | 25.0 | % | 9,728 | 24.1 | % | ||||||||||
Asia
|
2,954 | 6.7 | % | 1,831 | 4.5 | % | ||||||||||
Other
|
339 | 0.8 | % | 710 | 1.8 | % | ||||||||||
$ | 43,815 | 100.0 | % | $ | 40,336 | 100.0 | % |
1.
|
Breach of fiduciary duties for disseminating false and misleading statements
|
2.
|
Breach of fiduciary duties for failing to maintain internal controls
|
3.
|
Unjust enrichment
|
4.
|
Abuse of control
|
5.
|
Gross mismanagement
|
·
|
An unwavering commitment to create innovative solutions and services for casino operators and compelling gaming experiences for players through enhanced customer centricity.
|
·
|
Reinforce our true “strategic partner” relationships with our customers by providing enhanced efficiencies, security and profitability on the casino floor. We will continue to work on developing innovative products that anticipate and respond to their needs.
|
·
|
Maintain a cost-conscious mindset, promote a lean culture, and serve as prudent stewards of shareholder capital.
|
·
|
Create long-term profitability and sustainability through our recurring revenue model. We have and will continue to invest capital in our lease business to maximize our return and build on our economic engine.
|
·
|
Foster the spirit of invention and the commitment to innovation that is at the heart of our success. With nearly 500 approved patents pending, our pipeline for new intellectual property is robust. We believe our intellectual property collectively represents one of the strongest portfolios in the industry and our success depends upon our ability to preserve and protect our core assets.
|
·
|
Capitalize on emerging markets and the worldwide proliferation of gaming. A large part of our success in fiscal 2010 was turning opportunities into achievements. As new markets continue to emerge across the globe and as existing gaming markets continue to evolve, we will be two steps ahead in making the most of every opportunity that arises.
|
·
|
Sound balance sheet management will fuel growth and we will accomplish this in several ways:
|
o
|
Internal organic growth through continued investment in our recurring revenue model, global intellectual property and R&D. This will provide true growth on the Company’s top and bottom line without relying on the introduction of significant new markets.
|
o
|
Continued examination of acquisitions. We are seeking opportunities that are accretive to earnings, have strong existing recurring revenues, and merit our efforts of integration.
|
o
|
Use of our financial resources to improve our return to shareholders through continued deleveraging.
|
·
|
Promote and foster internal staff development, and deepen our bench strength. We know our success is directly attributable to the caliber of our workforce and we remain committed to each and every employee’s development. We will continue to set the talent bar high.
|
·
|
Drive margin improvement across all product categories. Our overall gross margin has shown continuous improvement over the past three fiscal years. We will continue our process improvement initiatives and uncover greater operational efficiencies. Our overall gross margin increases as lease revenue rises. As we continue to grow these recurring revenues, we anticipate improved gross margins.
|
·
|
Capitalize on opportunities created from existing online gaming markets and prepare ourselves for the potential legalization of internet gambling in the U.S. The gaming landscape is quickly evolving and we will be proactive in ensuring we are a leading content-provider in this arena. We believe online gaming represents a significant opportunity for our future growth.
|
|
·
|
We expect to continue increasing lease revenues in our Utility segment within the United States. One of the current growth drivers for this segment has been the Ace shuffler replacement cycle. The i-Deal shuffler is our next generation replacement for the Ace specialty shuffler. As the Ace reaches its end of life where we cannot provide replacement parts, our strategy is to encourage our customers to replace the Ace shufflers, both leased and previously sold, with the i-Deal shuffler. Approximately 80% of current i-Deal shuffler placements (both sales and leases) have been driven by the Ace replacement cycle. The majority of these placements are leases.
|
|
·
|
Our markets for shuffler lease and sale revenue have grown recently in the United States with the approval of live table gaming in several jurisdictions such as Pennsylvania and Delaware. A substantial share of our Utility revenue growth in the current quarter has been from these new jurisdictions.
|
|
·
|
We expect to continue seeing volatility in sales revenue in our Utility segment outside the United States. While we encourage leasing outside the United States, a large majority of our international Utility product placements are sales. Growth drivers for the Utility segment outside the United States are expected to be new jurisdictional openings, such as the new openings in Singapore and the Philippines during fiscal 2010, as well as the expansion of existing markets such as Macau. In the current fiscal quarter, new markets such as Singapore have contributed significantly to growth of our total global revenue base.
|
|
·
|
Our lease model is strongest in our PTG segment with more than 90% of our total PTG revenue coming from royalties and leases. While we have a strong leasing presence in the United States, we are constantly looking to expand our proprietary table games in other parts of the world where the current penetration of proprietary table games is lower. With the opening of new casino markets in Asia, we have recently seen some successes with new lease placements of our premium table games as well as progressives and side bets.
|
|
·
|
Although the majority of our PTG revenue comes from our premium table games, we also offer a number of progressive upgrades and side bets. These products are available for our own proprietary table game titles as well as public domain games such as poker, blackjack, baccarat and paigow poker. These progressives and side bets, offered almost exclusively through leases, are providing a growing share of our total PTG revenue.
|
|
·
|
We also aggressively pursue opportunities to place PTG products in new properties and jurisdictions in the United States. As noted above, several states have recently approved live table games, and we have seen significant placements of our table game products in those new jurisdictions.
|
|
·
|
We expect to continue to increase our lease revenues in our ETS segment within the United States. The current year has been impacted by new opportunities due to favorable regulatory changes in the prior year in states such as Florida that have allowed for significant new placements of our Table Master® product.
|
|
·
|
Outside the United States, we continue to realize a large portion of our ETS revenues from sales rather than leases. Favorable regulatory changes in the prior year in some Australian jurisdictions have allowed for significant placements of new Vegas Star® and Rapid Table Games® products during the current quarter. We have seen new opportunities for lease placements with the opening of new casino properties in Singapore in the prior year, and we intend to continue pursuing new lease placements whenever possible.
|
|
·
|
As we have seen revenue growth in our Utility and PTG segments as some states approve live table games, we have seen some of our leased ETS products returned from those same markets. Although this will cause some short-term setbacks in the growth of our domestic ETS business, we have been able to return these products to active service in other markets such as Mexico and South America.
|
|
·
|
During the current year we have begun generating revenue from placements of our new i-Table™ product. We expect this product, which combines an electronic betting interface with a live table game, to provide us with substantial growth opportunities as it achieves acceptance in the market.
|
|
·
|
Our EGM segment is primarily a sales model and we expect to continue to realize substantially all of our EGM revenues from sales of EGMs in our primary market, Australia.
|
|
·
|
Initial deliveries of Equinox began in July 2010, and we experienced record placements during the fourth quarter of fiscal 2010. We anticipate strong demand in future periods as Equinox gains broader market acceptance and have seen this continue in the first quarter of 2011.
|
|
·
|
A significant portion of our EGM revenue base comes from conversions of existing units to new game titles. We are continually developing new titles for our existing machines, and installation of these new titles provides us with an ongoing source of conversion revenue.
|
Three Months Ended
|
||||||||||||||||
January 31,
|
||||||||||||||||
2011
|
2010
|
|||||||||||||||
(In thousands)
|
||||||||||||||||
Revenue:
|
||||||||||||||||
Utility
|
$ | 17,361 | 39.6 | % | $ | 17,616 | 43.7 | % | ||||||||
Proprietary Table Games
|
11,226 | 25.6 | % | 9,035 | 22.4 | % | ||||||||||
Electronic Table Systems
|
8,131 | 18.6 | % | 8,375 | 20.8 | % | ||||||||||
Electronic Gaming Machines
|
7,097 | 16.2 | % | 5,310 | 13.1 | % | ||||||||||
Total revenue
|
43,815 | 100.0 | % | 40,336 | 100.0 | % | ||||||||||
Cost of revenue
|
14,647 | 33.4 | % | 15,489 | 38.4 | % | ||||||||||
Gross profit
|
29,168 | 66.6 | % | 24,847 | 61.6 | % | ||||||||||
Selling, general and administrative
|
16,201 | 37.0 | % | 14,357 | 35.6 | % | ||||||||||
Research and development
|
5,916 | 13.5 | % | 4,962 | 12.3 | % | ||||||||||
Income from operations
|
7,051 | 16.1 | % | 5,528 | 13.7 | % | ||||||||||
Other income (expense):
|
||||||||||||||||
Interest income
|
126 | 0.3 | % | 138 | 0.3 | % | ||||||||||
Interest expense
|
(701 | ) | (1.6 | %) | (1,056 | ) | (2.6 | %) | ||||||||
Other, net
|
157 | 0.3 | % | 654 | 1.6 | % | ||||||||||
Total other income (expense)
|
(418 | ) | (1.0 | %) | (264 | ) | (0.7 | %) | ||||||||
Income from operations before tax
|
6,633 | 15.1 | % | 5,264 | 13.0 | % | ||||||||||
Income tax provision
|
1,829 | 4.1 | % | 1,585 | 3.9 | % | ||||||||||
Net income
|
$ | 4,804 | 11.0 | % | $ | 3,679 | 9.1 | % |
Three Months Ended
|
||||||||||||
January 31,
|
Percentage
|
|||||||||||
2011
|
2010
|
Change
|
||||||||||
(In thousands) | ||||||||||||
Revenue:
|
||||||||||||
Leases and royalties
|
$ | 23,576 | $ | 20,493 | 15.0 | % | ||||||
Sales and service
|
20,239 | 19,843 | 2.0 | % | ||||||||
Total
|
$ | 43,815 | $ | 40,336 | 8.6 | % | ||||||
Cost of revenue:
|
||||||||||||
Leases and royalties
|
$ | 7,182 | $ | 6,304 | 13.9 | % | ||||||
Sales and service
|
7,465 | 9,185 | (18.7 | %) | ||||||||
Total
|
$ | 14,647 | $ | 15,489 | (5.4 | %) | ||||||
Gross profit:
|
||||||||||||
Leases and royalties
|
$ | 16,394 | $ | 14,189 | 15.5 | % | ||||||
Sales and service
|
12,774 | 10,658 | 19.9 | % | ||||||||
Total
|
$ | 29,168 | $ | 24,847 | 17.4 | % | ||||||
Gross margin:
|
||||||||||||
Leases and royalties
|
69.5 | % | 69.2 | % | ||||||||
Sales and service
|
63.1 | % | 53.7 | % | ||||||||
Total
|
66.6 | % | 61.6 | % |
|
·
|
Increase of $3,083 in our leases and royalties revenue
|
|
o
|
Driven primarily by a $2,060 increase in Utility lease revenue due to a 27.9% increase in shuffler units on lease
|
|
o
|
Increased PTG lease and royalty revenue of $1,409 due to a 15.6% increase in units on lease
|
|
o
|
Partially offset by a $420 decrease in ETS lease revenue due to return of 420 Table Master seats from Pennsylvania and Delaware during the prior fiscal year
|
|
o
|
Increases in Utility and ETS lease revenue partially driven by new casino openings in Singapore in the prior fiscal year
|
|
·
|
Increase in our sales and service revenue
|
|
o
|
Increase of $2,680 in our EGM segment driven by a 48.2% increase in sold units
|
|
o
|
Increase of $796 in PTG sales revenue primarily due to a single sale of lifetime licenses to a new casino opening in Las Vegas
|
|
o
|
Partially offset by a $2,189 decrease in Utility sales revenue due to our renewed strategic focus on lease versus sales
|
|
·
|
Impact of foreign currency fluctuations
|
|
o
|
Total revenue was positively impacted by approximately $700 due to the exchange effect of a weakening U.S. dollar
|
|
·
|
Increased segment margin performance
|
|
o
|
EGM was favorably impacted by improved product profitability and reduced amortization
|
|
o
|
ETS was favorably impacted by reduced amortization and by high margin sales of Rapid Table Games and Vegas Star
|
|
o
|
Utility was favorably impacted by strong lease margins and reduced amortization
|
|
·
|
Product mix
|
|
o
|
Strong margin performance by Utility, ETS and EGM segments led to higher overall profitability
|
Three Months Ended
|
||||||||||||
January 31,
|
Percentage
|
|||||||||||
2011
|
2010
|
Change
|
||||||||||
(In thousands)
|
||||||||||||
Selling, general and administrative
|
$ | 16,201 | $ | 14,357 | 12.8 | % | ||||||
Percentage of revenue
|
37.0 | % | 35.6 | % | ||||||||
Research and development
|
$ | 5,916 | $ | 4,962 | 19.2 | % | ||||||
Percentage of revenue
|
13.5 | % | 12.3 | % | ||||||||
Total operating expenses
|
$ | 22,117 | $ | 19,319 | 14.5 | % | ||||||
Percentage of revenue
|
50.5 | % | 47.9 | % |
|
·
|
Sales and profit-driven compensation expense
|
|
o
|
Increase of approximately $1,000 in compensation and related expenses driven by improved revenue and profitability at our United States, Australian and Macau locations
|
|
·
|
Depreciation and amortization expense
|
|
o
|
Increase in depreciation and amortization expense of $360 as noted under the “Depreciation and Amortization Expenses” discussion below
|
|
·
|
Impact of foreign currency fluctuations
|
|
o
|
Net increase of approximately $240 at our foreign subsidiaries due to the exchange effect of a weakening U.S. dollar
|
|
·
|
Licensing compliance
|
|
o
|
Increased costs of approximately $200 associated with obtaining regulatory approval for our products in new jurisdictions
|
|
·
|
Impact of foreign currency fluctuations
|
|
o
|
Net increases of approximately $260 at our foreign subsidiaries due to the weakening of the U.S. dollar
|
|
·
|
EGM
|
|
o
|
Additional R&D efforts were spent on developing additional EGM games for the new Equinox cabinet and to support ongoing business growth
|
|
·
|
ETS
|
|
o
|
Expenses primarily related to the further development of the i-Table and Rapid Table Games, including the development of proprietary titles for our i-Table
|
|
·
|
Utility
|
|
o
|
Expenses primarily related to development of the next generation of our MD2 shuffler, the MD2CR, as well as continuing development of our other Utility products
|
|
·
|
PTG
|
|
o
|
Ongoing enhancements to the successful progressive offering to our table game titles
|
|
·
|
We believe that one of our strengths is identifying new product opportunities, developing new products and refining current products. We expect R&D expense as a percentage of revenue to remain at historical levels
|
Three Months Ended
|
||||||||||||
January 31,
|
Percentage
|
|||||||||||
2011
|
2010
|
Change
|
||||||||||
(In thousands)
|
||||||||||||
Gross margin:
|
||||||||||||
Depreciation
|
$ | 2,410 | $ | 2,155 | 11.8 | % | ||||||
Amortization
|
1,627 | 2,601 | (37.4 | %) | ||||||||
Total
|
4,037 | 4,756 | (15.1 | %) | ||||||||
Operating expenses:
|
||||||||||||
Depreciation
|
973 | 700 | 39.0 | % | ||||||||
Amortization
|
751 | 669 | 12.3 | % | ||||||||
Total
|
1,724 | 1,369 | 25.9 | % | ||||||||
Total:
|
||||||||||||
Depreciation
|
3,383 | 2,855 | 18.5 | % | ||||||||
Amortization
|
2,378 | 3,270 | (27.3 | %) | ||||||||
Total
|
$ | 5,761 | $ | 6,125 | (5.9 | %) |
Three Months Ended
|
||||||||||||||||
January 31,
|
Increase
|
Percentage
|
||||||||||||||
2011
|
2010
|
(Decrease)
|
Change
|
|||||||||||||
(In thousands, except for units/seats and per unit/seat amounts)
|
||||||||||||||||
Utility Segment Revenue:
|
||||||||||||||||
Lease
|
$ | 10,006 | $ | 7,946 | $ | 2,060 | 25.9 | % | ||||||||
Sales - Shuffler
|
4,440 | 6,629 | (2,189 | ) | (33.0 | ) | ||||||||||
Sales - Chipper
|
113 | 536 | (423 | ) | (78.9 | ) | ||||||||||
Service
|
1,628 | 1,745 | (117 | ) | (6.7 | ) | ||||||||||
Other
|
1,174 | 760 | 414 | 54.5 | ||||||||||||
Total sales and service
|
7,355 | 9,670 | (2,315 | ) | (23.9 | ) | ||||||||||
Total Utility segment revenue
|
$ | 17,361 | $ | 17,616 | $ | (255 | ) | (1.4 | %) | |||||||
Utility segment gross profit
|
$ | 10,848 | $ | 10,705 | $ | 143 | 1.3 | % | ||||||||
Utility segment gross margin
|
62.5 | % | 60.8 | % | ||||||||||||
Utility segment operating income
|
$ | 9,228 | $ | 8,903 | $ | 325 | 3.7 | % | ||||||||
Utility segment operating margin
|
53.2 | % | 50.5 | % | ||||||||||||
Shuffler unit information:
|
||||||||||||||||
Lease units, end of quarter
|
7,344 | 5,741 | 1,603 | 27.9 | % | |||||||||||
Average monthly lease price
|
$ | 454 | $ | 461 | $ | (7 | ) | (1.5 | %) | |||||||
Sold units during the period
|
264 | 453 | (189 | ) | (41.7 | %) | ||||||||||
Average sales price
|
$ | 16,818 | $ | 14,634 | $ | 2,184 | 14.9 | % | ||||||||
Chipper unit information:
|
||||||||||||||||
Lease units, end of quarter
|
190 | 35 | 155 | 442.9 | % | |||||||||||
Sold during quarter
|
5 | 17 | (12 | ) | (70.6 | %) | ||||||||||
Average sales price
|
$ | 22,600 | $ | 31,529 | $ | (8,929 | ) | (28.3 | %) |
|
·
|
A 33.0% decrease in shuffler sales revenue
|
|
o
|
A decrease of 41.7% in the number of units sold, driven primarily by our strategic focus on leasing versus sales
|
|
o
|
Partially offset by a 14.9% increase in average sales price, driven primarily by increases on MD2 and one2six shufflers
|
|
·
|
A 78.9% decrease in chipper sales revenue
|
|
o
|
A decrease of 70.6% in the number of units sold, also reflecting the focus on leasing versus sales
|
|
o
|
A 28.3% decrease in the average sale price of units sold. The prior year period included several sales of Chipmaster units, which have a higher average sales price than our Easy Chipper units.
|
|
·
|
A 25.9% increase in lease revenue
|
|
o
|
An increase in the number of units on lease, driven primarily by our focus on leasing versus sales, and partly by new lease placements in Singapore and the Philippines during the prior year
|
|
o
|
Lease placements in the United States continue to be enhanced by the Ace® shuffler replacement cycle
|
|
Ø
|
The i-Deal shuffler is our next generation replacement for the Ace specialty shuffler. As the Ace reaches its end of life where we cannot provide replacement parts, our strategy is to encourage our customers to replace the Ace shufflers (both leased and sold) with the i-Deal shuffler. Current quarter i-Deal placements totaled approximately 425 units, leading to a net revenue increase of approximately $640
|
|
·
|
A 54.5% increase in other Utility revenue
|
|
o
|
Driven primarily by increased sales of i-Shoe and i-Score products
|
|
·
|
Increase in leased shuffler units—leased units generally drive higher gross margins than sales
|
|
·
|
Non-cash charges—a reduction of approximately $500 in amortization expense associated with the one2six shuffler and Easy Chipper C as the underlying intangible assets approach the end of their original estimated lives
|
|
·
|
The overall increases in gross profits as discussed above
|
|
·
|
A slight decrease in the amount of R&D and other expenses associated with the Utility segment
|
Three Months Ended
|
||||||||||||||||
January 31,
|
Increase
|
Percentage
|
||||||||||||||
2011
|
2010
|
(Decrease)
|
Change
|
|||||||||||||
(In thousands, except for units/seats and per unit/seat amounts)
|
||||||||||||||||
PTG segment revenue:
|
||||||||||||||||
Royalties and leases
|
$ | 10,291 | $ | 8,882 | $ | 1,409 | 15.9 | % | ||||||||
Sales
|
821 | 25 | 796 | 3,184.0 | ||||||||||||
Service
|
27 | 42 | (15 | ) | (35.7 | ) | ||||||||||
Other
|
87 | 86 | 1 | 1.2 | ||||||||||||
Total sales and service revenue
|
935 | 153 | 782 | 511.1 | ||||||||||||
Total PTG segment revenue
|
$ | 11,226 | $ | 9,035 | $ | 2,191 | 24.3 | % | ||||||||
PTG segment gross profit
|
$ | 9,262 | $ | 7,537 | $ | 1,725 | 22.9 | % | ||||||||
PTG segment gross margin
|
82.5 | % | 83.4 | % | ||||||||||||
PTG segment operating income
|
$ | 8,375 | $ | 6,930 | $ | 1,445 | 20.9 | % | ||||||||
PTG segment operating margin
|
74.6 | % | 76.7 | % | ||||||||||||
PTG unit information:
|
||||||||||||||||
Premium units, end of quarter
|
2,479 | 2,249 | 230 | 10.2 | % | |||||||||||
Side bet units, end of quarter
|
1,911 | 1,742 | 169 | 9.7 | % | |||||||||||
Progressive units, end of quarter
|
693 | 449 | 244 | 54.3 | % | |||||||||||
Add-on units, end of quarter
|
154 | 91 | 63 | 69.2 | % | |||||||||||
Total revenue generating lease base
|
5,237 | 4,531 | 706 | 15.6 | % | |||||||||||
Average monthly lease/license price
|
$ | 655 | $ | 653 | $ | 2 | 0.3 | % | ||||||||
Sold during quarter
|
13 | 2 | 11 | 550.0 | % | |||||||||||
Average sales price
|
$ | 63,154 | $ | 12,500 | $ | 50,654 | 405.2 | % |
|
·
|
A 15.9% increase in royalties and leases revenue
|
|
o
|
Increased placements of premium table games and progressive units in the United States, primarily Ultimate Texas Hold’ em® and Three Card Poker Progressive. These placements were largely driven by favorable regulatory changes in Pennsylvania and Delaware
|
|
o
|
New placements of premium table games and progressives in Singapore drove increased revenues of approximately $180
|
|
·
|
Increase in PTG sales revenue
|
|
o
|
Driven by placements of premium table games in the United States, primarily Three Card Poker and Let it Ride Bonus lifetime licenses related to a new casino opening in Las Vegas
|
|
·
|
The overall increase in total revenues
|
|
·
|
Increased amortization of intangible assets
|
|
·
|
The increase in gross profit referred to above
|
|
·
|
Increase in amortization of intangible assets
|
Three Months Ended
|
||||||||||||||||
January 31,
|
Increase
|
Percentage
|
||||||||||||||
2011
|
2010
|
(Decrease)
|
Change
|
|||||||||||||
(In thousands, except for units/seats and per unit/seat amounts)
|
||||||||||||||||
ETS segment revenue:
|
||||||||||||||||
Royalties and leases
|
$ | 3,194 | $ | 3,614 | $ | (420 | ) | (11.6 | %) | |||||||
Sales
|
3,925 | 3,811 | 114 | 3.0 | ||||||||||||
Service
|
135 | 147 | (12 | ) | (8.2 | ) | ||||||||||
Other
|
877 | 803 | 74 | 9.2 | ||||||||||||
Total sales and service revenue
|
4,937 | 4,761 | 176 | 3.7 | ||||||||||||
Total ETS segment revenue
|
$ | 8,131 | $ | 8,375 | $ | (244 | ) | (2.9 | %) | |||||||
ETS segment gross profit
|
$ | 4,650 | $ | 3,919 | $ | 731 | 18.7 | % | ||||||||
ETS segment gross margin
|
57.2 | % | 46.8 | % | ||||||||||||
ETS segment operating income
|
$ | 1,813 | $ | 1,523 | $ | 290 | 19.0 | % | ||||||||
ETS segment operating margin
|
22.3 | % | 18.2 | % | ||||||||||||
ETS unit information:
|
||||||||||||||||
Lease seats, end of quarter
|
2,583 | 2,293 | 290 | 12.6 | % | |||||||||||
Average monthly lease price
|
$ | 412 | $ | 525 | (113 | ) | (21.5 | %) | ||||||||
Sold seats during quarter
|
173 | 178 | (5 | ) | (2.8 | %) | ||||||||||
Average sales price
|
$ | 22,688 | $ | 21,410 | 1,278 | 6.0 | % |
|
·
|
A decrease of 11.6% in royalties and leases revenue
|
|
o
|
A decrease of 21.5% in average lease price, driven primarily by the return of approximately 420 Table Master seats previously leased in Pennsylvania and Delaware in the prior year. This resulted in a decrease in ETS lease revenue of approximately $1,400 during the three months ended January 31, 2011. We have begun to return these Table Masters to active service in other markets such as Mexico and South America
|
|
o
|
Partially offset by a 12.6% increase in seats on lease, driven primarily by Table Master seats in Florida due to favorable regulatory changes in the prior year, and by Rapid Table Games seats in Singapore. These installations began during the prior year
|
|
·
|
Impact of foreign currency fluctuations
|
|
o
|
Total revenue was positively impacted by approximately $260 due to the exchange effect of a weakening U.S. dollar
|
|
·
|
A 3.0% increase in sales revenue
|
|
o
|
Increase of 40.0% in Table Master seats sold, primarily in Florida and Maryland, totaling approximately $1,400
|
|
o
|
Increase of 5.5% in Vegas Star seats sold in Australia, combined with a 22.1% increase in average sales price, totaling approximately $1,500
|
|
o
|
Partially offset by a 37.8% decrease in Rapid Table Games seats sold, combined with a 7.2% decrease in average sales price. The prior year period included a large sale of Rapid Table Games seats in Australia.
|
|
·
|
Improved product margins
|
|
o
|
Significant improvement in Vegas Star margins due to reductions in materials costs
|
|
o
|
Improvements in average sales prices which also drove higher sales margins
|
|
·
|
Fixed amortization
|
|
o
|
A reduction of approximately $490 in amortization expense associated with Vegas Star and Rapid Table Games product lines as the underlying intangible assets became fully amortized during the three months ended January 31, 2010
|
|
·
|
The increases in gross profit and gross margin noted above
|
|
·
|
Offset partially by an increase in R&D costs associated with the ETS segment
|
Three Months Ended
|
||||||||||||||||
January 31,
|
Increase
|
Percentage
|
||||||||||||||
2011
|
2010
|
(Decrease)
|
Change
|
|||||||||||||
(In thousands, except for units/seats and per unit/seat amounts)
|
||||||||||||||||
EGM segment revenue:
|
||||||||||||||||
Lease revenue
|
$ | 86 | $ | 51 | $ | 35 | 68.6 | % | ||||||||
Sales
|
6,136 | 3,456 | 2,680 | 77.5 | ||||||||||||
Other
|
875 | 1,803 | (928 | ) | (51.5 | ) | ||||||||||
Total sales and service revenue
|
7,011 | 5,259 | 1,752 | 33.3 | ||||||||||||
Total EGM segment revenue
|
$ | 7,097 | $ | 5,310 | $ | 1,787 | 33.7 | % | ||||||||
EGM segment gross profit
|
$ | 4,408 | $ | 2,686 | $ | 1,722 | 64.1 | % | ||||||||
EGM segment gross margin
|
62.1 | % | 50.6 | % | ||||||||||||
EGM segment operating income
|
$ | 1,764 | $ | 1,107 | $ | 657 | 59.3 | % | ||||||||
EGM segment operating margin
|
24.9 | % | 20.8 | % | ||||||||||||
EGM unit information:
|
||||||||||||||||
Lease seats, end of quarter
|
17 | 17 | - | 0.0 | % | |||||||||||
Sold during quarter
|
323 | 218 | 105 | 48.2 | % | |||||||||||
Average sales price
|
$ | 18,997 | $ | 15,853 | $ | 3,144 | 19.8 | % |
|
·
|
A 77.5% increase in sales revenue
|
|
o
|
Driven by the 48.2% increase in sold units
|
|
o
|
The increase in units sold is the result of the introduction of our new Equinox cabinet. Equinox offers widescreen displays and substantially improved graphics and user interfaces over older-style EGMs. Placements of Equinox units began in July 2010 and totaled approximately 250 units in the current quarter
|
|
o
|
The 19.8% increase in average sales price was partially due to exchange effects; the average sales price in Australian dollars increased 11.3%, reflecting higher sales prices for Equinox units
|
|
·
|
Impact of foreign exchange fluctuations
|
|
o
|
Total revenue was positively impacted by approximately $500 due to the exchange effect of a weakening U.S. dollar
|
|
·
|
A decrease of 51.5% in other revenue, driven by a decrease in sales of conversion kits and other parts and peripherals. The prior year period included a large sale of conversion kits to a single customer
|
|
·
|
The increase in EGM sales revenues as noted above, driven primarily by the increase in units sold and in average sales price for the new Equinox cabinet
|
|
·
|
Improvements in material and production costs, due primarily to value engineering on the new Equinox cabinet
|
|
·
|
A reduction of approximately $130 in amortization expense associated with EGM products as the underlying intangible assets became fully amortized in the three months ended January 31, 2010
|
|
·
|
The increases in total EGM revenue and gross profit as noted above
|
|
·
|
Partially offset by increased R&D costs related to the development of the new Equinox cabinet and related game content
|
January 31,
|
October 31,
|
Increase
|
Percentage
|
|||||||||||||
2011
|
2010
|
(Decrease)
|
Change
|
|||||||||||||
(In thousands, except ratios)
|
||||||||||||||||
Cash and cash equivalents
|
$ | 18,099 | $ | 9,988 | $ | 8,111 | 81.2 | % | ||||||||
Working capital
|
$ | 69,411 | $ | 58,628 | $ | 10,783 | 18.4 | % | ||||||||
Current ratio
|
2.8 : 1
|
2.2 : 1
|
0.6 |
Three Months Ended
|
||||||||||||||||
January 31,
|
Increase
|
Percentage
|
||||||||||||||
2011
|
2010
|
(Decrease)
|
Change
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Net cash provided by operating activities
|
$ | 8,287 | $ | 11,839 | $ | (3,552 | ) | (30.0 | %) | |||||||
Net cash used in investing activities
|
(14,704 | ) | (5,753 | ) | 8,951 | 155.6 | % | |||||||||
Net cash provided by financing activities
|
14,524 | 2,830 | 11,694 | 413.2 | % | |||||||||||
Effects of exchange rates
|
4 | 14 | (10 | ) | 71.4 | % | ||||||||||
Net change in cash and cash equivalents
|
$ | 8,111 | $ | 8,930 |
Three Months Ended
|
||||||||||||||||
January 31,
|
Increase
|
Percentage
|
||||||||||||||
2011
|
2010
|
(Decrease)
|
Change
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Payments for products leased and held for lease
|
$ | (4,277 | ) | $ | (5,026 | ) | $ | (749 | ) | (14.9 | %) | |||||
Purchases of property and equipment
|
(930 | ) | (729 | ) | 201 | 27.6 | % | |||||||||
Purchases of intangible assets
|
(4,910 | ) | (1,576 | ) | 3,334 | 211.5 | % | |||||||||
Total capital expenditures
|
$ | (10,117 | ) | $ | (7,331 | ) |
|
·
|
Strong operating performance led to an increase in net income of approximately $1,100
|
|
·
|
An increase in cash used for inventory of approximately $3,400. The increase in inventory is related to pending installations across all segments globally. As a result, inventory turns decreased from 2.7 times for the three months ended January 31, 2010 to 2.4 times as of January 31, 2011
|
|
·
|
The increase in accrued liabilities related to the settlement of our Class Action Lawsuits and Shareholder Derivative Suits was offset by an increase in other current assets representing reimbursements receivable under our D&O insurance policy
|
|
·
|
Offset by a decrease in non-cash items of approximately $1,600, to $4,671 in the three months ended January 31, 2011 from $6,240 in the same prior year period. During the three months ended January 31, 2011 and 2010, non-cash items primarily consisted of depreciation and amortization, amortization of debt issuance costs, share-based compensation, provision for bad debts, gain on sale of leased assets and loss (gain) on sale of assets. Additionally, for the three months ended January 31, 2011 and 2010, non-cash items also included excess benefit from exercise of stock options and write-down for inventory obsolescence, respectively
|
|
·
|
Increased cash used for acquisition of business, net of cash acquired of approximately $6,500 related to the Newton acquisition, see Note 2 of our Condensed Consolidated Financial Statements for more information
|
|
·
|
Increased cash used for purchases of intangible assets of approximately $3,300 related to the acquisition of intellectual property from Prime Table Games, see Note 2 to our Condensed Consolidated Financial Statements for more information
|
|
·
|
Offset by a decrease in payments for products leased and held for lease of $750
|
|
·
|
Cash used for debt payments decreased approximately $1,300 from $5,300 during the three months ended January 31, 2010 as compared to $4,000 in the current quarter. Debt payments in the current quarter primarily related to the payment on our Revolver. Debt payments during the prior quarter related primarily to partial repayment of amounts outstanding under our $100,000 senior secured credit facility (the “Deutsche Bank Senior Secured Credit Facility”) and our $65,000 term loan facility, which were satisfied and terminated in October 2010
|
|
·
|
For the three months ended January 31, 2011, we received approximately $16,500 proceeds from our Revolver which was primarily used for Newton and Prime Table Games acquisitions, as described above, offset by proceeds received of approximately $8,200 from our Deutsche Bank Senior Secured Credit Facility during the same prior year period. Our Deutsche Bank Senior Secured Credit Facility was satisfied and terminated in October 2010
|
Total Number of Shares Purchased
|
Average Price Paid per Share
|
Total Number of Shares Purchased as Part of Publicly Announced Program
|
Maximum Value of Shares That May Yet Be Purchased Under the Stock Buyback Program (1)
|
|||||||||||||
November 1 through November 30, 2010
|
- | $ | - | - | $ | 21,077 | ||||||||||
December 1 through December 31, 2010
|
- | - | - | 21,077 | ||||||||||||
January 1 through January 31, 2011
|
- | - | - | 21,077 | ||||||||||||
Total
|
- | $ | - | - |
10.1
|
Employment Agreement by and between Shuffle Master, Inc. and David Lopez dated February 16, 2011.
|
|
10.2
|
Severance Agreement and General Release between Phillip Peckman and Shuffle Master, Inc. dated January 7, 2011 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed January 13, 2011).
|
|
31.1
|
Certification of Interim Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31.2
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32.1*
|
Certification of Interim Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32.2*
|
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
SHUFFLE MASTER, INC.
(Registrant)
|
|
Date: March 10, 2011
|
|
/s/ DAVID LOPEZ
|
|
David Lopez
Interim Chief Executive Officer
(Principal Executive Officer)
|
|
/s/ LINSTER W. FOX
|
|
Linster W. Fox
Chief Financial Officer
(Principal Financial Officer)
|
|
1.
|
as soon as reasonably practical after the termination date, accrued Annual Base Salary earned but not yet paid through the termination date;
|
|
2.
|
severance equal to one year’s Annual Base Salary in existence as of the date of termination, which amount shall be paid by Company to Executive in accordance with the normal payroll practices of Company in effect on the date of this Agreement, in equal installments over a twenty-four (24) month period beginning on the next payroll date immediately following termination;
|
|
3.
|
as soon as reasonably practical after the termination date, a lump sum amount equal to his accrued vacation days; and,
|
|
4.
|
subject to the provisions of Company's medical benefit plans, if Executive (and his spouse and dependents if applicable) is eligible for and elects continuation of coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), and if COBRA coverage is applicable to Company's medical benefit plans, through the earlier of (i) twenty-four (24) months from the termination date of Executive or the maximum number of months that COBRA coverage is available by law at the time of Executive’s termination, whichever is less, or (ii) Executive's date of employment by a subsequent employer, Company shall pay the premiums for Executive's (and spouse’s and dependents’ if applicable) COBRA coverage; and
|
|
5.
|
The payments identified in Article VI(G).
|
|
1.
|
Article VI Disputes. Executive and Company agree that any disputes arising out of the provisions of Article VI of this Agreement shall be settled by the courts of law, mediation or arbitration (binding or otherwise), at the sole election of Company.
|
|
2.
|
Other Disputes. Executive and Company agree that any disputes between them other than those arising out of or relating to Article VI of this Agreement shall be submitted to mediation. If not resolved in mediation, such dispute shall be finally resolved by arbitration in accordance with the Commercial Rules of the American Arbitration Association. During the arbitration, Executive will pay for Executive's own costs and attorneys' fees, if any, and Company will pay for its own costs and attorneys' fees, if any. Attorneys' fees and costs may be awarded by the arbitrator to the prevailing party. The arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C. §§ 1-16 and judgment upon the award rendered by the arbitrator may be entered by any court having jurisdiction. The arbitrator shall not have the right to award speculative damages or punitive damages to either Executive or Company except as expressly permitted by statute and shall not have the power to amend this Agreement. The arbitrator shall be required to follow applicable law. The place of arbitration shall be within twenty-five (25) miles of Company’s corporate headquarters in existence as of the date of the demand for arbitration. Any application to enforce or set aside the arbitration award shall be filed in a state or federal court located within the jurisdiction closest to Company’s headquarters in existence as of the date of the demand for arbitration.
|
|
L.
|
Post-Termination Medical Benefits. Notwithstanding any provision of this Agreement to the contrary, in the event that the Company determines that the provision of post-termination medical benefits to Executive pursuant to Article V(C) or V(D)(4) above would, at any time such benefits are to be provided to Executive, subject the Company to adverse tax consequences under applicable Federal or state law, the Company in its sole discretion will instead reimburse Executive each month for either: (1) the amount necessary to enable Executive to pay the COBRA premium applicable to the coverage maintained by Executive for the month; or (2) the amount necessary to enable Executive to pay the premium Executive would be required to pay to obtain coverage comparable to the coverage then maintained by Executive under a policy of insurance selected by Company if Executive (and, if applicable any qualified beneficiary related to Executive) waives the right to COBRA continuation coverage. The payment to be made pursuant to the preceding sentence shall continue through, but only through, the period during which Company would otherwise be required to provide post-termination medical coverage pursuant to Article V(C) or V(D)(4) above.
|
|
M.
|
Company Policies. During the term of this Agreement, Executive shall engage in no activity or employment which may conflict with the interests of the Company, and Employee shall comply with all policies and procedures of the Company including without limitation, all policies and procedures pertaining to ethics.
|
SHUFFLE MASTER, INC. | ||
/s/ LINSTER W. FOX | ||
Linster W. Fox, Executive Vice President, | ||
Chief Financial Officer and Secretary | ||
/s/ GARRY W. SAUNDERS | ||
Garry W. Saunders, Chairman of the Board | ||
EXECUTIVE: | ||
/s/ DAVID B. LOPEZ | ||
David B. Lopez | ||
APPROVED: | ||
COMPENSATION COMMITTEE | ||
/s/ DANIEL M. WADE | ||
Daniel M. Wade, Chairman |
Date: March 10, 2011
|
|
/s/ DAVID LOPEZ
|
|
David Lopez
Interim Chief Executive Officer
|
Date: March 10, 2011
|
|
/s/ LINSTER W. FOX
|
|
Linster W. Fox
Chief Financial Officer
|
Date: March 10, 2011
|
|
/s/ DAVID LOPEZ
|
|
David Lopez
Interim Chief Executive Officer
|
Date: March 10, 2011
|
|
/s/ LINSTER W. FOX
|
|
Linster W. Fox
Chief Financial Officer
|