x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended April 30, 2011
|
|
OR
|
|
o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
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Minnesota
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41-1448495
|
|
(State or Other Jurisdiction
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(IRS Employer Identification No.)
|
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of Incorporation or Organization)
|
||
1106 Palms Airport Drive, Las Vegas
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NV
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89119
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(Address of Principal
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(State)
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(Zip Code)
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Executive Offices)
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Large accelerated filer o
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Accelerated filer x
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Non-accelerated filer o
(Do not check if a smaller reporting company)
|
Smaller reporting company o
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Page
|
||
PART I—FINANCIAL INFORMATION
|
||
Item 1.
|
Financial Statements (unaudited):
|
|
Condensed Consolidated Statements of Operations for the Three and Six Months ended April 30, 2011 and 2010
|
3
|
|
Condensed Consolidated Balance Sheets as of April 30, 2011 and October 31, 2010
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4
|
|
Condensed Consolidated Statements of Cash Flows for the Six Months ended April 30, 2011 and 2010
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5
|
|
Notes to Condensed Consolidated Financial Statements
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6
|
|
Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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19
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Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
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41
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Item 4.
|
Controls and Procedures
|
41
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PART II—OTHER INFORMATION
|
||
Item 1.
|
Legal Proceedings
|
42
|
Item 1A.
|
Risk Factors
|
42
|
Item 2.
|
Unregistered Sale of Equity Securities and Use of Proceeds
|
42
|
Item 3.
|
Defaults Upon Senior Securities
|
42
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Item 4.
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(Removed and Reserved)
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42
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Item 5.
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Other Information
|
42
|
Item 6.
|
Exhibits
|
42
|
Signatures
|
43
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Three Months Ended
|
Six Months Ended
|
|||||||||||||||
April 30,
|
April 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Revenue:
|
||||||||||||||||
Product leases and royalties
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$ | 24,264 | $ | 21,477 | $ | 47,840 | $ | 41,970 | ||||||||
Product sales and service
|
35,619 | 29,339 | 55,858 | 49,182 | ||||||||||||
Total revenue
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59,883 | 50,816 | 103,698 | 91,152 | ||||||||||||
Costs and expenses:
|
||||||||||||||||
Cost of leases and royalties
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8,354 | 7,158 | 15,536 | 13,462 | ||||||||||||
Cost of sales and service
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15,435 | 11,359 | 22,900 | 20,544 | ||||||||||||
Gross profit
|
36,094 | 32,299 | 65,262 | 57,146 | ||||||||||||
Selling, general and administrative
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17,060 | 15,702 | 33,261 | 30,059 | ||||||||||||
Research and development
|
6,883 | 5,244 | 12,799 | 10,206 | ||||||||||||
Total costs and expenses
|
47,732 | 39,463 | 84,496 | 74,271 | ||||||||||||
Income from operations
|
12,151 | 11,353 | 19,202 | 16,881 | ||||||||||||
Other income (expense):
|
||||||||||||||||
Interest income
|
126 | 154 | 252 | 292 | ||||||||||||
Interest expense
|
(671 | ) | (960 | ) | (1,372 | ) | (2,016 | ) | ||||||||
Other, net
|
(1,118 | ) | 473 | (961 | ) | 1,127 | ||||||||||
Total other income (expense)
|
(1,663 | ) | (333 | ) | (2,081 | ) | (597 | ) | ||||||||
Income before income taxes
|
10,488 | 11,020 | 17,121 | 16,284 | ||||||||||||
Income tax provision
|
2,542 | 3,135 | 4,371 | 4,720 | ||||||||||||
Net income
|
$ | 7,946 | $ | 7,885 | $ | 12,750 | $ | 11,564 | ||||||||
Basic earnings per share:
|
$ | 0.15 | $ | 0.15 | $ | 0.24 | $ | 0.22 | ||||||||
Diluted earnings per share:
|
$ | 0.14 | $ | 0.15 | $ | 0.23 | $ | 0.21 | ||||||||
Weighted average shares outstanding:
|
||||||||||||||||
Basic
|
54,374 | 53,251 | 54,253 | 53,234 | ||||||||||||
Diluted
|
55,010 | 54,126 | 54,953 | 54,092 |
April 30,
|
October 31,
|
|||||||
2011
|
2010
|
|||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$ | 16,983 | $ | 9,988 | ||||
Accounts receivable, net of allowance for bad debts of $521 and $466
|
43,538 | 41,176 | ||||||
Investment in sales-type leases and notes receivable, net of allowance for bad debts of $56 and $71
|
2,289 | 1,806 | ||||||
Inventories
|
33,549 | 27,351 | ||||||
Prepaid income taxes
|
4,802 | 7,086 | ||||||
Deferred income taxes
|
5,316 | 5,091 | ||||||
Other current assets
|
5,565 | 14,969 | ||||||
Total current assets
|
112,042 | 107,467 | ||||||
Investment in sales-type leases and notes receivable, net of current portion and net of allowance for bad debts of $14 and $42
|
564 | 1,104 | ||||||
Products leased and held for lease, net
|
33,097 | 31,975 | ||||||
Property and equipment, net
|
13,795 | 12,642 | ||||||
Intangible assets, net
|
72,069 | 64,144 | ||||||
Goodwill
|
87,517 | 75,932 | ||||||
Deferred income taxes
|
6,809 | 7,523 | ||||||
Other assets
|
2,999 | 3,173 | ||||||
Total assets
|
$ | 328,892 | $ | 303,960 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
|
$ | 5,609 | $ | 7,013 | ||||
Accrued and other current liabilities
|
18,721 | 34,762 | ||||||
Deferred income taxes, current
|
124 | 116 | ||||||
Income tax payable
|
2,306 | 74 | ||||||
Customer deposits
|
3,273 | 2,973 | ||||||
Deferred revenue
|
4,314 | 3,901 | ||||||
Total current liabilities
|
34,347 | 48,839 | ||||||
Long-term debt
|
73,776 | 66,262 | ||||||
Other long-term liabilities
|
2,505 | 2,641 | ||||||
Deferred income taxes
|
75 | 70 | ||||||
Total liabilities
|
110,703 | 117,812 | ||||||
Commitments and contingencies (See Note 12)
|
||||||||
Shareholders' equity:
|
||||||||
Common stock, $0.01 par value; 151,368 shares authorized; 54,061 and 53,650 shares issued and outstanding
|
541 | 536 | ||||||
Additional paid-in capital
|
111,890 | 108,705 | ||||||
Retained earnings
|
61,998 | 49,248 | ||||||
Accumulated other comprehensive income
|
43,760 | 27,659 | ||||||
Total shareholders' equity
|
218,189 | 186,148 | ||||||
Total liabilities and shareholders' equity
|
$ | 328,892 | $ | 303,960 |
Six Months Ended
|
||||||||
April 30,
|
||||||||
2011
|
2010
|
|||||||
Cash flows from operating activities:
|
||||||||
Net income
|
$ | 12,750 | $ | 11,564 | ||||
Adjustments to reconcile net income to cash provided by operating activities:
|
||||||||
Depreciation and amortization
|
11,876 | 11,950 | ||||||
Amortization of debt issuance costs
|
238 | 515 | ||||||
Share-based compensation
|
1,478 | 1,855 | ||||||
Provision for bad debts
|
101 | 243 | ||||||
Write-down for inventory obsolescence
|
113 | 594 | ||||||
Gain on sale of leased assets
|
(2,379 | ) | (3,346 | ) | ||||
Loss (Gain) on sale of assets
|
96 | (37 | ) | |||||
Excess tax benefit from exercise of stock options
|
(771 | ) | (8 | ) | ||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable
|
(1,761 | ) | 5,881 | |||||
Investment in sales-type leases and notes receivable
|
540 | (227 | ) | |||||
Inventories
|
(5,668 | ) | 2,900 | |||||
Accounts payable and accrued liabilities
|
(16,533 | ) | 9,423 | |||||
Customer deposits and deferred revenue
|
777 | (2,270 | ) | |||||
Income taxes payable
|
2,404 | 571 | ||||||
Deferred income taxes
|
1,340 | (16 | ) | |||||
Prepaid income taxes
|
2,305 | 1,253 | ||||||
Other
|
9,604 | (13,324 | ) | |||||
Net cash provided by operating activities
|
16,510 | 27,521 | ||||||
Cash flows from investing activities:
|
||||||||
Proceeds from sale of leased assets
|
3,810 | 4,953 | ||||||
Proceeds from sale of assets
|
76 | 38 | ||||||
Payments for products leased and held for lease
|
(7,263 | ) | (13,139 | ) | ||||
Purchases of property and equipment
|
(2,001 | ) | (2,553 | ) | ||||
Purchases of intangible assets
|
(6,145 | ) | (2,171 | ) | ||||
Acquisition of business
|
(6,499 | ) | - | |||||
Other
|
(446 | ) | (814 | ) | ||||
Net cash used in investing activities
|
(18,468 | ) | (13,686 | ) | ||||
Cash flows from financing activities:
|
||||||||
Proceeds from Revolver
|
16,500 | - | ||||||
Debt payments on Revolver
|
(10,000 | ) | - | |||||
Proceeds from Deutsche Bank Senior Secured Credit Facility
|
- | 8,245 | ||||||
Debt payments on Deutsche Bank Senior Secured Credit Facility
|
- | (7,365 | ) | |||||
Debt payments on Term Loan
|
- | (4,494 | ) | |||||
Proceeds from issuances of common stock, net
|
1,610 | 43 | ||||||
Excess tax benefit from exercise of stock options
|
771 | 8 | ||||||
Other
|
(20 | ) | (97 | ) | ||||
Net cash provided by (used in) financing activities
|
8,861 | (3,660 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents
|
92 | 148 | ||||||
Net increase in cash and cash equivalents
|
6,995 | 10,323 | ||||||
Cash and cash equivalents, beginning of period
|
9,988 | 7,840 | ||||||
Cash and cash equivalents, end of period
|
$ | 16,983 | $ | 18,163 |
·
|
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.
|
|
·
|
For fair value categorized in Level 3 of the fair value hierarchy:
|
|
1.
|
a quantitative disclosure of the unobservable inputs and assumptions used in the measurement,
|
|
2.
|
a description of the valuation processes in place (e.g., how the entity decides its valuation policies and procedures, as well as changes in its analyses of fair value measurements, from period to period), and
|
|
3.
|
a narrative description of the sensitivity of the fair value to changes in unobservable inputs and interrelationships between those inputs.
|
|
·
|
The level in the fair value hierarchy of items that are not measured at fair value in the statement of financial position but whose fair value must be disclosed.
|
April 30,
|
October 31,
|
|||||||
2011
|
2010
|
|||||||
(In thousands)
|
||||||||
Net inventories:
|
||||||||
Raw materials and component parts
|
$ | 17,099 | $ | 17,322 | ||||
Work-in-process
|
4,653 | 5,325 | ||||||
Finished goods
|
11,797 | 4,704 | ||||||
Total
|
$ | 33,549 | $ | 27,351 |
April 30,
|
October 31,
|
|||||||
2011
|
2010
|
|||||||
(In thousands)
|
||||||||
Other current assets:
|
||||||||
Prepaid expenses
|
$ | 3,062 | $ | 2,483 | ||||
Insurance receivables
|
27 | 10,840 | ||||||
Other receivables
|
2,130 | 845 | ||||||
Other
|
346 | 801 | ||||||
Total
|
$ | 5,565 | $ | 14,969 |
April 30,
|
October 31,
|
|||||||
2011
|
2010
|
|||||||
(In thousands)
|
||||||||
Products leased and held for lease:
|
||||||||
Utility
|
$ | 43,474 | $ | 41,262 | ||||
Less: accumulated depreciation
|
(26,455 | ) | (24,439 | ) | ||||
Utility, net
|
17,019 | 16,823 | ||||||
Proprietary Table Games
|
6,418 | 3,997 | ||||||
Less: accumulated depreciation
|
(2,700 | ) | (2,059 | ) | ||||
Proprietary Table Games, net
|
3,718 | 1,938 | ||||||
Electronic Table Systems
|
26,020 | 25,437 | ||||||
Less: accumulated depreciation
|
(13,660 | ) | (12,223 | ) | ||||
Electronic Table Systems, net
|
12,360 | 13,214 | ||||||
Total, net
|
$ | 33,097 | $ | 31,975 |
April 30,
|
October 31,
|
|||||||
2011
|
2010
|
|||||||
(In thousands)
|
||||||||
Accrued and other current liabilities:
|
||||||||
Accrued compensation
|
$ | 10,312 | $ | 13,148 | ||||
Accrued taxes
|
1,862 | 1,896 | ||||||
Accrued legal fees
|
730 | 11,376 | ||||||
Other accrued liabilities
|
5,817 | 8,342 | ||||||
Total
|
$ | 18,721 | $ | 34,762 |
Weighted Average
|
April 30,
|
October 31,
|
|||||||
Useful Life
|
2011
|
2010
|
|||||||
(In thousands)
|
|||||||||
Amortizable intangible assets:
|
|||||||||
Patents, games and products
|
10 years
|
$ | 70,328 | $ | 64,344 | ||||
Less: accumulated amortization
|
(51,247 | ) | (46,925 | ) | |||||
19,081 | 17,419 | ||||||||
Customer relationships
|
10 years
|
26,138 | 24,299 | ||||||
Less: accumulated amortization
|
(11,728 | ) | (9,563 | ) | |||||
14,410 | 14,736 | ||||||||
Licenses and other
|
6 - 9 years
|
18,560 | 13,328 | ||||||
Less: accumulated amortization
|
(6,091 | ) | (4,667 | ) | |||||
12,469 | 8,661 | ||||||||
Total
|
$ | 45,960 | $ | 40,816 |
Electronic | ||||||||||||||||||||
Proprietary
|
Electronic
|
Gaming
|
||||||||||||||||||
Activity by Segment
|
Utility
|
Table Games
|
Table Systems
|
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
|
3,422 | - | 1,463 | 1,456 | 6,341 | |||||||||||||||
Acquisition
|
4,799 | - | - | - | 4,799 | |||||||||||||||
Other
|
- | 445 | - | - | 445 | |||||||||||||||
Balance as of April 30, 2011
|
$ | 50,781 | $ | 9,771 | $ | 13,514 | $ | 13,451 | $ | 87,517 |
April 30,
|
October 31,
|
|||||||
2011
|
2010
|
|||||||
(In thousands)
|
||||||||
Revolver
|
$ | 71,946 | $ | 65,445 | ||||
Newton future consideration
|
1,044 | - | ||||||
Other long-term debt
|
786 | 817 | ||||||
Total long-term debt
|
$ | 73,776 | $ | 66,262 |
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
April 30,
|
April 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(In thousands) | ||||||||||||||||
Net income (loss)
|
$ | 7,946 | $ | 7,885 | $ | 12,750 | $ | 11,564 | ||||||||
Currency translation adjustment
|
15,281 | 543 | 16,101 | (4,458 | ) | |||||||||||
Total other comprehensive income (loss)
|
$ | 23,227 | $ | 8,428 | $ | 28,851 | $ | 7,106 |
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
|
527 | 10.87 | ||||||||||||||
Exercised
|
(389 | ) | 4.14 | |||||||||||||
Forfeited or expired
|
(199 | ) | 17.22 | |||||||||||||
Outstanding at April 30, 2011
|
4,779 | $ | 13.88 | 5.6 | $ | 8,243 | ||||||||||
Fully vested and expected to vest at April 30, 2011
|
4,738 | $ | 13.95 | 5.6 | $ | 8,165 | ||||||||||
Exercisable at April 30, 2011
|
3,382 | $ | 14.92 | 4.5 | $ | 5,300 |
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
|
327 | 10.10 | ||||||||||||||
Vested
|
(137 | ) | 15.94 | |||||||||||||
Forfeited
|
(27 | ) | 8.72 | |||||||||||||
Nonvested at April 30, 2011
|
519 | $ | 12.86 | 1.52 | $ | 5,675 | ||||||||||
Expected to vest
|
498 | $ | 12.97 | 1.47 | $ | 5,444 |
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
April 30,
|
April 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Compensation costs:
|
||||||||||||||||
Stock options
|
$ | 467 | $ | 568 | $ | 988 | $ | 1,549 | ||||||||
Restricted stock
|
276 | 279 | 490 | 306 | ||||||||||||
Total compensation cost
|
$ | 743 | $ | 847 | $ | 1,478 | $ | 1,855 | ||||||||
Related tax benefit
|
$ | (260 | ) | $ | (261 | ) | $ | (516 | ) | $ | (574 | ) |
Three Months Ended
|
Six Months Ended
|
|||||||
April 30, 2011
|
April 30, 2011
|
|||||||
Option valuation assumptions:
|
||||||||
Expected dividend yield
|
None
|
None
|
||||||
Expected volatility
|
64.5 | % | 64.8 | % | ||||
Risk-free interest rate
|
1.8 | % | 1.7 | % | ||||
Expected term
|
4.4 years
|
4.4 years
|
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
April 30,
|
April 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(In thousands, except per share amount) | ||||||||||||||||
Net income available to common shares
|
$ | 7,946 | $ | 7,885 | $ | 12,750 | $ | 11,564 | ||||||||
Basic
|
||||||||||||||||
Weighted average shares
|
54,374 | 53,251 | 54,253 | 53,234 | ||||||||||||
Diluted
|
||||||||||||||||
Weighted average shares, basic
|
54,374 | 53,251 | 54,253 | 53,234 | ||||||||||||
Dilutive effect of options
|
636 | 875 | 700 | 858 | ||||||||||||
Weighted average shares, diluted
|
55,010 | 54,126 | 54,953 | 54,092 | ||||||||||||
Basic earnings per share
|
$ | 0.15 | $ | 0.15 | $ | 0.24 | $ | 0.22 | ||||||||
Diluted earnings per share
|
$ | 0.14 | $ | 0.15 | $ | 0.23 | $ | 0.21 | ||||||||
Weighted average anti-dilutive shares excluded from diluted EPS
|
3,417 | 2,893 | 3,211 | 3,005 |
Carrying Value
|
Fair Value
|
Carrying Value
|
Fair Value
|
Fair Value
|
|||||||||||||
April 30, 2011
|
April 30, 2011
|
October 31, 2010
|
October 31, 2010
|
Hierarchy
|
|||||||||||||
(In thousands) | |||||||||||||||||
Revolver
|
$ | 71,946 | $ | 71,924 | $ | 65,445 | $ | 65,445 |
Level 2
|
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
April 30,
|
April 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(In thousands) | ||||||||||||||||
Revenue:
|
||||||||||||||||
Utility
|
$ | 19,172 | $ | 21,130 | $ | 36,533 | $ | 38,746 | ||||||||
Proprietary Table Games
|
10,546 | 10,170 | 21,772 | 19,205 | ||||||||||||
Electronic Table Systems
|
11,797 | 12,444 | 19,928 | 20,819 | ||||||||||||
Electronic Gaming Machines
|
18,368 | 7,072 | 25,465 | 12,382 | ||||||||||||
$ | 59,883 | $ | 50,816 | $ | 103,698 | $ | 91,152 | |||||||||
Gross profit (loss):
|
||||||||||||||||
Utility
|
$ | 11,584 | $ | 12,886 | $ | 22,432 | $ | 23,591 | ||||||||
Proprietary Table Games
|
8,405 | 7,715 | 17,667 | 15,252 | ||||||||||||
Electronic Table Systems
|
4,837 | 7,832 | 9,487 | 11,751 | ||||||||||||
Electronic Gaming Machines
|
11,268 | 3,866 | 15,676 | 6,552 | ||||||||||||
$ | 36,094 | $ | 32,299 | $ | 65,262 | $ | 57,146 | |||||||||
Operating income (loss):
|
||||||||||||||||
Utility
|
$ | 9,858 | $ | 11,242 | $ | 19,086 | $ | 20,145 | ||||||||
Proprietary Table Games
|
7,385 | 7,148 | 15,760 | 14,078 | ||||||||||||
Electronic Table Systems
|
1,719 | 5,377 | 3,532 | 6,900 | ||||||||||||
Electronic Gaming Machines
|
8,393 | 1,978 | 10,157 | 3,085 | ||||||||||||
Unallocated Corporate
|
(15,204 | ) | (14,392 | ) | (29,333 | ) | (27,327 | ) | ||||||||
$ | 12,151 | $ | 11,353 | $ | 19,202 | $ | 16,881 | |||||||||
Depreciation and amortization:
|
||||||||||||||||
Utility
|
$ | 1,947 | $ | 1,904 | $ | 3,199 | $ | 3,972 | ||||||||
Proprietary Table Games
|
1,456 | 1,850 | 2,769 | 3,023 | ||||||||||||
Electronic Table Systems
|
1,705 | 1,436 | 3,903 | 3,403 | ||||||||||||
Electronic Gaming Machines
|
60 | - | 128 | 197 | ||||||||||||
Unallocated Corporate
|
947 | 635 | 1,877 | 1,355 | ||||||||||||
$ | 6,115 | $ | 5,825 | $ | 11,876 | $ | 11,950 | |||||||||
Capital expenditures:
|
||||||||||||||||
Utility
|
$ | 2,169 | $ | 5,744 | $ | 4,366 | $ | 8,796 | ||||||||
Proprietary Table Games
|
746 | 329 | 6,175 | 952 | ||||||||||||
Electronic Table Systems
|
1,516 | 2,671 | 3,077 | 5,015 | ||||||||||||
Electronic Gaming Machines
|
67 | - | 67 | 878 | ||||||||||||
Unallocated Corporate
|
794 | 1,788 | 1,724 | 2,222 | ||||||||||||
$ | 5,292 | $ | 10,532 | $ | 15,409 | $ | 17,863 |
Three Months Ended
|
Six Months Ended
|
|||||||||||||||||||||||||||||||
April 30,
|
April 30,
|
|||||||||||||||||||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||||||||||||||||||
(Dollars in thousands)
|
||||||||||||||||||||||||||||||||
Revenue:
|
||||||||||||||||||||||||||||||||
United States
|
$ | 24,345 | 40.7 | % | $ | 24,988 | 49.2 | % | $ | 50,350 | 48.6 | % | $ | 47,478 | 52.1 | % | ||||||||||||||||
Canada
|
1,882 | 3.1 | % | 1,884 | 3.7 | % | 3,274 | 3.2 | % | 4,664 | 5.1 | % | ||||||||||||||||||||
Other North America
|
1,592 | 2.7 | % | 1,133 | 2.2 | % | 2,360 | 2.3 | % | 1,788 | 2.0 | % | ||||||||||||||||||||
Europe
|
2,236 | 3.7 | % | 2,437 | 4.8 | % | 3,642 | 3.5 | % | 4,579 | 5.0 | % | ||||||||||||||||||||
Australia
|
24,563 | 41.0 | % | 14,684 | 28.9 | % | 35,514 | 34.2 | % | 24,412 | 26.8 | % | ||||||||||||||||||||
Asia
|
4,822 | 8.1 | % | 5,564 | 11.0 | % | 7,776 | 7.5 | % | 7,395 | 8.1 | % | ||||||||||||||||||||
Other
|
443 | 0.7 | % | 126 | 0.2 | % | 782 | 0.7 | % | 836 | 0.9 | % | ||||||||||||||||||||
$ | 59,883 | 100.0 | % | $ | 50,816 | 100.0 | % | $ | 103,698 | 100.0 | % | $ | 91,152 | 100.0 | % |
·
|
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 2,400 patents and trademarks granted and 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.
|
·
|
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 historically are sales. We are starting to see increased lease activity in international markets such as Australia, Asia and Latin America. Growth drivers for the Utility segment outside the United States are the 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.
|
·
|
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 pai gow 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 approved live table games over the past year, and we have seen significant placements of our table game products in those new jurisdictions.
|
·
|
Although we continually pursue opportunities to increase lease revenues in our ETS segment within the United States, we have seen some of our leased ETS products returned from those same markets as some states approve live table games. While this will cause some short-term setbacks in the growth of our domestic ETS business, we have been able to return some of these products to service in other markets such as Mexico and South America. However, the new placements are not yet performing to the same revenue and profitability levels as the units that were removed.
|
·
|
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.
|
·
|
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 through the second quarter of 2011.
|
·
|
A 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.
|
·
|
In addition to our primary EGM market in Australia, we are pursuing opportunities for sales growth in Asia and Latin America.
|
Three Months Ended
|
Six Months Ended
|
|||||||||||||||||||||||||||||||
April 30,
|
April 30,
|
|||||||||||||||||||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||||||||||||||||||
(Dollars in thousands)
|
||||||||||||||||||||||||||||||||
Revenue:
|
||||||||||||||||||||||||||||||||
Utility
|
$ | 19,172 | 32.0 | % | $ | 21,130 | 41.6 | % | $ | 36,533 | 35.2 | % | $ | 38,746 | 42.5 | % | ||||||||||||||||
Proprietary Table Games
|
10,546 | 17.6 | % | 10,170 | 20.0 | % | 21,772 | 21.0 | % | 19,205 | 21.1 | % | ||||||||||||||||||||
Electronic Table Systems
|
11,797 | 19.7 | % | 12,444 | 24.5 | % | 19,928 | 19.2 | % | 20,819 | 22.8 | % | ||||||||||||||||||||
Electronic Gaming Machines
|
18,368 | 30.7 | % | 7,072 | 13.9 | % | 25,465 | 24.6 | % | 12,382 | 13.6 | % | ||||||||||||||||||||
Total revenue
|
59,883 | 100.0 | % | 50,816 | 100.0 | % | 103,698 | 100.0 | % | 91,152 | 100.0 | % | ||||||||||||||||||||
Cost of revenue
|
23,789 | 39.7 | % | 18,517 | 36.4 | % | 38,436 | 37.1 | % | 34,006 | 37.3 | % | ||||||||||||||||||||
Gross profit
|
36,094 | 60.3 | % | 32,299 | 63.6 | % | 65,262 | 62.9 | % | 57,146 | 62.7 | % | ||||||||||||||||||||
Selling, general and administrative
|
17,060 | 28.5 | % | 15,702 | 30.9 | % | 33,261 | 32.1 | % | 30,059 | 33.0 | % | ||||||||||||||||||||
Research and development
|
6,883 | 11.5 | % | 5,244 | 10.3 | % | 12,799 | 12.3 | % | 10,206 | 11.2 | % | ||||||||||||||||||||
Income from operations
|
12,151 | 20.3 | % | 11,353 | 22.4 | % | 19,202 | 18.5 | % | 16,881 | 18.6 | % | ||||||||||||||||||||
Other income (expense):
|
||||||||||||||||||||||||||||||||
Interest income
|
126 | 0.2 | % | 154 | 0.3 | % | 252 | 0.2 | % | 292 | 0.3 | % | ||||||||||||||||||||
Interest expense
|
(671 | ) | (1.1 | %) | (960 | ) | (1.9 | %) | (1,372 | ) | (1.3 | %) | (2,016 | ) | (2.2 | %) | ||||||||||||||||
Other, net
|
(1,118 | ) | (1.9 | %) | 473 | 0.9 | % | (961 | ) | (0.9 | %) | 1,127 | 1.2 | % | ||||||||||||||||||
Total other income (expense)
|
(1,663 | ) | (2.8 | %) | (333 | ) | (0.7 | %) | (2,081 | ) | (2.0 | %) | (597 | ) | (0.7 | %) | ||||||||||||||||
Income from operations before tax
|
10,488 | 17.5 | % | 11,020 | 21.7 | % | 17,121 | 16.5 | % | 16,284 | 17.9 | % | ||||||||||||||||||||
Income tax provision
|
2,542 | 4.2 | % | 3,135 | 6.2 | % | 4,371 | 4.2 | % | 4,720 | 5.2 | % | ||||||||||||||||||||
Net income
|
$ | 7,946 | 13.3 | % | $ | 7,885 | 15.5 | % | $ | 12,750 | 12.3 | % | $ | 11,564 | 12.7 | % |
Three Months Ended
|
Six Months Ended
|
|||||||||||||||||||||||
April 30,
|
Percentage
|
April 30,
|
Percentage
|
|||||||||||||||||||||
2011
|
2010
|
Change
|
2011
|
2010
|
Change
|
|||||||||||||||||||
(Dollars in thousands)
|
||||||||||||||||||||||||
Revenue:
|
||||||||||||||||||||||||
Leases and royalties
|
$ | 24,264 | $ | 21,477 | 13.0% | $ | 47,840 | $ | 41,970 | 14.0% | ||||||||||||||
Sales and service
|
35,619 | 29,339 | 21.4% | 55,858 | 49,182 | 13.6% | ||||||||||||||||||
Total
|
$ | 59,883 | $ | 50,816 | 17.8% | $ | 103,698 | $ | 91,152 | 13.8% | ||||||||||||||
Cost of revenue:
|
||||||||||||||||||||||||
Leases and royalties
|
$ | 8,354 | $ | 7,158 | 16.7% | $ | 15,536 | $ | 13,462 | 15.4% | ||||||||||||||
Sales and service
|
15,435 | 11,359 | 35.9% | 22,900 | 20,544 | 11.5% | ||||||||||||||||||
Total
|
$ | 23,789 | $ | 18,517 | 28.5% | $ | 38,436 | $ | 34,006 | 13.0% | ||||||||||||||
Gross profit:
|
||||||||||||||||||||||||
Leases and royalties
|
$ | 15,910 | $ | 14,319 | 11.1% | $ | 32,304 | $ | 28,508 | 13.3% | ||||||||||||||
Sales and service
|
20,184 | 17,980 | 12.3% | 32,958 | 28,638 | 15.1% | ||||||||||||||||||
Total
|
$ | 36,094 | $ | 32,299 | 11.7% | $ | 65,262 | $ | 57,146 | 14.2% | ||||||||||||||
Gross margin:
|
||||||||||||||||||||||||
Leases and royalties
|
65.6 | % | 66.7 | % | 67.5 | % | 67.9 | % | ||||||||||||||||
Sales and service
|
56.7 | % | 61.3 | % | 59.0 | % | 58.2 | % | ||||||||||||||||
Total
|
60.3 | % | 63.6 | % | 62.9 | % | 62.7 | % |
|
·
|
Increase of $6,280 in our sales and service revenue:
|
|
o
|
Increase most notably in our EGM segment attributable to a substantial increase in sold units driven by the launch of our Equinox™ cabinet:
|
|
Ø
|
During the prior year, we experienced a downturn in EGM sales of approximately 32.2% below historical levels, which we attributed to customers delaying purchases in anticipation of the new Equinox™ cabinet’s introduction. Since we began shipping Equinox™ in July 2010, we have seen very strong improvement in EGM sales. During the current quarter, EGM unit sales were 161.9% above prior year levels driven almost entirely by Equinox™. While we would not expect to see this record growth continue indefinitely, we do expect that EGM sales in fiscal 2011 will continue substantially above historical levels for the remainder of the year.
|
|
o
|
Sales and service revenue in our Utility, PTG and ETS segments were down 22.3% collectively, partly due to our strategic focus on lease versus sales. Prior year sales in these segments were higher due to the effect of events such as new facility openings in Singapore and favorable regulatory changes in the United States and Australia:
|
|
Ø
|
Decreased Utility sales revenue due primarily to our strategic focus on lease versus sales. Prior year Utility sales were higher due to the effect of new facility openings in Singapore and favorable regulatory changes in the United States;
|
|
Ø
|
Decrease in PTG sales revenue primarily due to a 75.0% reduction in sales of lifetime licenses; and
|
|
Ø
|
Decreased ETS sales revenue driven primarily by a 27.9% decrease in sold seats. Prior year ETS sales were driven by favorable regulatory changes in Australia.
|
|
·
|
Increase of $2,787 in our leases and royalties revenue was primarily due to our strategic focus on leasing as well as events such as new facility openings and favorable regulatory changes:
|
|
o
|
Driven primarily by increased Utility lease revenue due to a 21.9% increase in shuffler units on lease;
|
|
o
|
Increased PTG lease and royalty revenue due to a 12.8% increase in units on lease;
|
|
o
|
Increased Utility lease revenue partially driven by a new casino opening in Singapore in the prior year;
|
|
o
|
Decreased ETS lease revenue driven by a 20.8% decrease in average monthly lease price, primarily due to Table Master® removals in Pennsylvania and Delaware in the prior year; and
|
|
o
|
Decrease in ETS average monthly lease price partially offset by increased seats on lease due to favorable regulatory changes in the prior year.
|
|
·
|
Impact of foreign currency fluctuations:
|
|
o
|
Total revenue was positively impacted by approximately $2,800 due to the exchange effect of a weakening U.S. dollar.
|
|
·
|
Decreased segment margin performance:
|
|
o
|
ETS was unfavorably impacted by reductions in average monthly lease prices and number of units sold. Sales in the prior year included several large placements of Vegas Star® and Rapid Tables Games® seats in Australia at favorable margins;
|
|
o
|
Utility was unfavorably impacted by reduced number of units sold; and
|
|
o
|
PTG was favorably impacted by reduced costs related to prior year write-off of certain intangibles and related hardware.
|
|
·
|
Partially offset by improved EGM margins due to increases in average sales prices and reductions in manufacturing costs for our new Equinox™ cabinet. Prior year sales were composed entirely of eStar™ cabinets, which had a higher production cost and lower margin than Equinox™. Current year sales are composed of approximately 90% Equinox™ cabinets.
|
|
·
|
Impact of foreign currency fluctuations:
|
|
o
|
Total gross profit was positively impacted by approximately $1,200 due to the exchange effect of a weakening U.S. dollar.
|
|
·
|
Increase in our sales and service revenue:
|
|
o
|
Increase most notably in our EGM segment driven by a substantial increase in sold units driven by the launch of our Equinox™ cabinet:
|
|
Ø
|
During the prior year, we experienced a downturn in EGM sales of approximately 22.0% below historical levels, which we attributed to customers delaying purchases in anticipation of the new Equinox™ cabinet’s introduction. Since we began shipping Equinox™ in July 2010, we have seen very strong improvement in EGM sales. During the current quarter, EGM unit sales were 119.7% above prior year levels driven almost entirely by Equinox™. While we would not expect to see this record growth continue indefinitely, we do expect that EGM sales in fiscal 2011 will continue substantially above historical levels for the remainder of the year.
|
|
o
|
Sales and service revenue in our Utility, PTG and ETS segments were down 17.1% collectively, partly due to our strategic focus on lease versus sales. Prior year sales in these segments were higher due to the effect of events such as new facility openings in Singapore and favorable regulatory changes in the United States and Australia:
|
|
Ø
|
Decreased Utility sales revenue due primarily to our continued strategic focus on lease versus sales. Prior year Utility sales were high due to the effect of new facility openings in Singapore and favorable regulatory changes in the United States; and
|
|
Ø
|
Decrease in ETS sales revenue driven by a 20.5% decrease in sold seats. Prior year ETS sales were driven by favorable regulatory changes in Australia.
|
|
·
|
Increase of $5,870 in our leases and royalties revenue was primarily due to our strategic focus on leasing as well as events such as new facility openings and favorable regulatory changes:
|
|
o
|
Driven primarily by increased Utility lease revenue due to a 21.9% increase in shuffler units on lease;
|
|
o
|
Increased PTG lease and royalty revenue due to a 12.8% increase in units on lease;
|
|
o
|
Increased Utility lease revenue partially driven by new casino opening in Singapore in the prior year;
|
|
o
|
Decreased ETS lease revenue driven by a 21.6% reduction in average monthly lease price, primarily due to Table Master® removals in Pennsylvania and Delaware in the prior year; and
|
|
o
|
Decrease in ETS average monthly lease price partially offset by increased seats on lease due to favorable regulatory changes in the prior year.
|
|
·
|
Impact of foreign currency fluctuations:
|
|
o
|
Total revenue was positively impacted by approximately $3,500 due to the exchange effect of a weakening U.S. dollar.
|
|
·
|
Increased segment margin performance:
|
|
o
|
Improved EGM margins due to increases in average sales prices and reductions in manufacturing costs;
|
|
o
|
ETS was unfavorably impacted by reductions in average monthly lease prices and number of units sold. Sales in the prior year included several large placements of Vegas Star® and Rapid Tables Games® seats in Australia at favorable margins;
|
|
o
|
Utility was unfavorably impacted by a reduced number of units sold; and
|
|
o
|
PTG was favorably impacted by reduced costs related to prior year write-off of certain intangibles and related hardware.
|
|
·
|
Impact of foreign currency fluctuations:
|
|
o
|
Total gross profit was positively impacted by approximately $2,100 due to the exchange effect of a weakening U.S. dollar.
|
Three Months Ended
|
Six Months Ended
|
|||||||||||||||||||||||
April 30,
|
Percentage
|
April 30,
|
Percentage
|
|||||||||||||||||||||
2011
|
2010
|
Change
|
2011
|
2010
|
Change
|
|||||||||||||||||||
(Dollars in thousands)
|
||||||||||||||||||||||||
Selling, general and administrative
|
$ | 17,060 | $ | 15,702 | 8.6 | % | $ | 33,261 | $ | 30,059 | 10.7 | % | ||||||||||||
Percentage of revenue
|
28.5 | % | 30.9 | % | 32.1 | % | 33.0 | % | ||||||||||||||||
Research and development
|
$ | 6,883 | $ | 5,244 | 31.3 | % | $ | 12,799 | $ | 10,206 | 25.4 | % | ||||||||||||
Percentage of revenue
|
11.5 | % | 10.3 | % | 12.3 | % | 11.2 | % | ||||||||||||||||
Total operating expenses
|
$ | 23,943 | $ | 20,946 | 14.3 | % | $ | 46,060 | $ | 40,265 | 14.4 | % | ||||||||||||
Percentage of revenue
|
40.0 | % | 41.2 | % | 44.4 | % | 44.2 | % |
|
·
|
Patents and trademark expenses:
|
|
o
|
Increase of approximately $680 in trademark, copyright and patent expenses related to new products and expansion into new markets.
|
|
·
|
Impact of foreign currency fluctuations:
|
|
o
|
Net increase of approximately $570 at our foreign subsidiaries due to the exchange effect of a weakening U.S. dollar.
|
|
·
|
Office expense:
|
|
o
|
Increase in depreciation expense of approximately $300 driven by improvements to our information technology infrastructure during the prior year.
|
|
·
|
Impact of foreign currency fluctuations:
|
|
o
|
Net increase of approximately $440 at our foreign subsidiaries due to the exchange effect of a weakening of 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 and demand for new games.
|
|
·
|
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® and i-Table Roulette™.
|
|
·
|
Utility:
|
|
o
|
Expenses primarily related to development of the next generation 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.
|
|
·
|
Sales and profit-driven compensation expense:
|
|
o
|
Increase of approximately $980 in compensation and related expenses driven by improved revenue and profitability at our United States, Australian and Macau locations.
|
|
·
|
Patents and trademark expenses:
|
|
o
|
Increase of approximately $890 in trademark, copyright and patent expenses related to new products and expansion into new markets.
|
|
·
|
Impact of foreign currency fluctuations:
|
|
o
|
Net increase of approximately $810 at our foreign subsidiaries due to the exchange effect of a weakening of U.S. dollar.
|
|
·
|
Office expense:
|
|
o
|
Increase in depreciation expense of approximately $600 driven by improvements to our information technology infrastructure during the prior year.
|
|
·
|
Impact of foreign currency fluctuations:
|
|
o
|
Net increase of approximately $700 at our foreign subsidiaries due to the exchange effect of a weakening of U.S. dollar.
|
|
·
|
EGM:
|
|
o
|
Additional R&D efforts were spent on developing additional EGM games for the new Equinox™ cabinets 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® and i-Table Roulette™.
|
|
·
|
Utility:
|
|
o
|
Expenses primarily related to development of the next generation 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.
|
Three Months Ended
|
Six Months Ended
|
|||||||||||||||||||||||
April 30,
|
Percentage
|
April 30,
|
Percentage
|
|||||||||||||||||||||
2011
|
2010
|
Change
|
2011
|
2010
|
Change
|
|||||||||||||||||||
(Dollars in thousands)
|
||||||||||||||||||||||||
Gross margin:
|
||||||||||||||||||||||||
Depreciation
|
$ | 2,597 | $ | 2,304 | 12.7 | % | $ | 5,007 | $ | 4,459 | 12.3 | % | ||||||||||||
Amortization
|
1,722 | 2,173 | (20.8 | %) | 3,349 | 4,774 | (29.8 | %) | ||||||||||||||||
Total
|
4,319 | 4,477 | (3.5 | %) | 8,356 | 9,233 | (9.5 | %) | ||||||||||||||||
Operating expenses:
|
||||||||||||||||||||||||
Depreciation
|
1,017 | 663 | 53.4 | % | 1,990 | 1,363 | 46.0 | % | ||||||||||||||||
Amortization
|
779 | 685 | 13.7 | % | 1,530 | 1,354 | 13.0 | % | ||||||||||||||||
Total
|
1,796 | 1,348 | 33.2 | % | 3,520 | 2,717 | 29.6 | % | ||||||||||||||||
Total:
|
||||||||||||||||||||||||
Depreciation
|
3,614 | 2,967 | 21.8 | % | 6,997 | 5,822 | 20.2 | % | ||||||||||||||||
Amortization
|
2,501 | 2,858 | (12.5 | %) | 4,879 | 6,128 | (20.4 | %) | ||||||||||||||||
Total
|
$ | 6,115 | $ | 5,825 | 5.0 | % | $ | 11,876 | $ | 11,950 | (0.6 | %) | ||||||||||||
Three Months Ended
|
||||||||||||||||
April 30,
|
Increase
|
Percentage
|
||||||||||||||
2011
|
2010
|
(Decrease)
|
Change
|
|||||||||||||
(In thousands, except for units/seats and per unit/seat amounts)
|
||||||||||||||||
Utility Segment Revenue:
|
||||||||||||||||
Lease
|
$ | 10,275 | $ | 8,295 | $ | 1,980 | 23.9 | % | ||||||||
Sales - Shuffler
|
5,252 | 9,183 | (3,931 | ) | (42.8 | ) | ||||||||||
Sales - Chipper
|
360 | 543 | (183 | ) | (33.7 | ) | ||||||||||
Service
|
1,684 | 1,751 | (67 | ) | (3.8 | ) | ||||||||||
Other
|
1,601 | 1,358 | 243 | 17.9 | ||||||||||||
Total sales and service
|
8,897 | 12,835 | (3,938 | ) | (30.7 | ) | ||||||||||
Total Utility segment revenue
|
$ | 19,172 | $ | 21,130 | $ | (1,958 | ) | (9.3 | %) | |||||||
Utility segment gross profit
|
$ | 11,584 | $ | 12,886 | $ | (1,302 | ) | (10.1 | %) | |||||||
Utility segment gross margin
|
60.4 | % | 61.0 | % | ||||||||||||
Utility segment operating income
|
$ | 9,858 | $ | 11,242 | $ | (1,384 | ) | (12.3 | %) | |||||||
Utility segment operating margin
|
51.4 | % | 53.2 | % | ||||||||||||
Shuffler unit information:
|
||||||||||||||||
Lease units, end of quarter
|
7,391 | 6,062 | 1,329 | 21.9 | % | |||||||||||
Average monthly lease price
|
$ | 463 | $ | 456 | $ | 7 | 1.5 | % | ||||||||
Sold units during the period
|
355 | 674 | (319 | ) | (47.3 | %) | ||||||||||
Average sales price
|
$ | 14,794 | $ | 13,625 | $ | 1,169 | 8.6 | % | ||||||||
Chipper unit information:
|
||||||||||||||||
Lease units, end of quarter
|
200 | 125 | 75 | 60.0 | % | |||||||||||
Sold during quarter
|
18 | 25 | (7 | ) | (28.0 | %) | ||||||||||
Average sales price
|
$ | 20,000 | $ | 21,720 | $ | (1,720 | ) | (7.9 | %) |
|
·
|
A 42.8% decrease in shuffler sales revenue:
|
|
o
|
A decrease of 47.3% in the number of units sold, driven primarily by our strategic focus on leasing versus sales. The prior year period also included a large sale of shufflers related to the opening of a new casino in Singapore; and
|
|
o
|
Partially offset by an 8.6% increase in average sales price, driven primarily by increases on MD2® and one2six® shufflers.
|
|
·
|
A 33.7% decrease in chipper sales revenue:
|
|
o
|
A decrease of 28.0% in the number of units sold, also reflecting the focus on leasing versus sales; and
|
|
o
|
A 7.9% decrease in the average sale price of units sold.
|
|
·
|
A 23.9% 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 in the prior year. We are starting to see increased lease activity in international markets such as Asia and Latin America; and
|
|
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. The Ace® shuffler replacement cycle is beginning to slow down as we exhaust the supply of Ace® units available to be replaced.
|
|
·
|
A 17.9% increase in other Utility revenue:
|
|
o
|
Driven primarily by increased sales of parts and peripherals and i-Shoe™ Auto and i-Score™ products.
|
|
·
|
The overall decrease in total revenues as noted above; and
|
|
·
|
Partially offset by a decrease in non-cash charges—a reduction of approximately $410 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 decreases in gross profits as discussed above.
|
Six Months Ended
|
||||||||||||||||
April 30,
|
Increase
|
Percentage
|
||||||||||||||
2011
|
2010
|
(Decrease)
|
Change
|
|||||||||||||
(In thousands, except for units/seats and per unit/seat amounts)
|
||||||||||||||||
Utility Segment Revenue:
|
||||||||||||||||
Lease
|
$ | 20,281 | $ | 16,241 | $ | 4,040 | 24.9 | % | ||||||||
Sales - Shuffler
|
9,692 | 15,812 | (6,120 | ) | (38.7 | ) | ||||||||||
Sales - Chipper
|
473 | 1,079 | (606 | ) | (56.2 | ) | ||||||||||
Service
|
3,312 | 3,496 | (184 | ) | (5.3 | ) | ||||||||||
Other
|
2,775 | 2,118 | 657 | 31.0 | ||||||||||||
Total sales and service
|
16,252 | 22,505 | (6,253 | ) | (27.8 | ) | ||||||||||
Total Utility segment revenue
|
$ | 36,533 | $ | 38,746 | $ | (2,213 | ) | (5.7 | %) | |||||||
Utility segment gross profit
|
$ | 22,432 | $ | 23,591 | $ | (1,159 | ) | (4.9 | %) | |||||||
Utility segment gross margin
|
61.4 | % | 60.9 | % | ||||||||||||
Utility segment operating income
|
$ | 19,086 | $ | 20,145 | $ | (1,059 | ) | (5.3 | %) | |||||||
Utility segment operating margin
|
52.2 | % | 52.0 | % | ||||||||||||
Shuffler unit information:
|
||||||||||||||||
Lease units, end of period
|
7,391 | 6,062 | 1,329 | 21.9 | % | |||||||||||
Average monthly lease price
|
$ | 457 | $ | 447 | $ | 10 | 2.2 | % | ||||||||
Sold units during the period
|
619 | 1,127 | (508 | ) | (45.1 | %) | ||||||||||
Average sales price
|
$ | 15,658 | $ | 14,030 | $ | 1,628 | 11.6 | % | ||||||||
Chipper unit information:
|
||||||||||||||||
Lease units, end of period
|
200 | 125 | 75 | 60.0 | % | |||||||||||
Sold during period
|
23 | 42 | (19 | ) | (45.2 | %) | ||||||||||
Average sales price
|
$ | 20,565 | $ | 25,690 | $ | (5,125 | ) | (19.9 | %) |
|
·
|
A 38.7% decrease in shuffler sales revenue:
|
|
o
|
A decrease of 45.1% in the number of units sold, driven primarily by our strategic focus on leasing versus sales. The prior year period also included a large sale of shufflers related to the opening of a new casino in Singapore; and
|
|
o
|
Partially offset by a 11.6% increase in average sales price, driven primarily by increases on MD2® and one2six® shufflers.
|
|
·
|
A 56.2% decrease in chipper sales revenue:
|
|
o
|
A decrease of 45.2% in the number of units sold, also reflecting the focus on leasing versus sales; and
|
|
o
|
A 19.9% 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 24.9% 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 in the prior year. We are starting to see increased lease activity in international markets such as Asia and Latin America; and
|
|
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 year i-Deal® placements totaled approximately 490 units, leading to a net revenue increase of approximately $1,330.
|
|
·
|
A 31.0% increase in other Utility revenue:
|
|
o
|
Driven primarily by increased sales of i-Shoe™ Auto and i-Score™ products.
|
|
·
|
The overall decrease in total revenues as noted above; and
|
|
·
|
Partially offset by a decrease in non-cash charges—a reduction of approximately $910 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 increases in shuffler average monthly lease and average sale prices; and
|
|
·
|
The decrease in non-cash charges noted above.
|
|
·
|
The overall decrease in gross profits as discussed above.
|
Three Months Ended
|
||||||||||||||||
April 30,
|
Increase
|
Percentage
|
||||||||||||||
2011
|
2010
|
(Decrease)
|
Change
|
|||||||||||||
(In thousands, except for units/seats and per unit/seat amounts)
|
||||||||||||||||
PTG segment revenue:
|
||||||||||||||||
Royalties and leases
|
$ | 10,370 | $ | 9,228 | $ | 1,142 | 12.4 | % | ||||||||
Sales
|
73 | 854 | (781 | ) | (91.5 | ) | ||||||||||
Service
|
30 | 30 | - | - | ||||||||||||
Other
|
73 | 58 | 15 | 25.9 | ||||||||||||
Total sales and service revenue
|
176 | 942 | (766 | ) | (81.3 | ) | ||||||||||
Total PTG segment revenue
|
$ | 10,546 | $ | 10,170 | $ | 376 | 3.7 | % | ||||||||
PTG segment gross profit
|
$ | 8,405 | $ | 7,715 | $ | 690 | 8.9 | % | ||||||||
PTG segment gross margin
|
79.7 | % | 75.9 | % | ||||||||||||
PTG segment operating income
|
$ | 7,385 | $ | 7,148 | $ | 237 | 3.3 | % | ||||||||
PTG segment operating margin
|
70.0 | % | 70.3 | % | ||||||||||||
PTG unit information:
|
||||||||||||||||
Premium units, end of quarter
|
2,425 | 2,288 | 137 | 6.0 | % | |||||||||||
Side bet units, end of quarter
|
1,935 | 1,769 | 166 | 9.4 | % | |||||||||||
Progressive units, end of quarter
|
724 | 513 | 211 | 41.1 | % | |||||||||||
Add-on units, end of quarter
|
155 | 74 | 81 | 109.5 | % | |||||||||||
Total revenue generating lease base
|
5,239 | 4,644 | 595 | 12.8 | % | |||||||||||
Average monthly lease/license price
|
$ | 660 | $ | 662 | $ | (2 | ) | (0.3 | %) | |||||||
Sold during quarter
|
6 | 24 | (18 | ) | (75.0 | %) | ||||||||||
Average sales price
|
$ | 12,167 | $ | 35,583 | $ | 23,416 | 65.8 | % |
|
·
|
A 12.4% increase in royalties and leases revenue:
|
|
o
|
Increased placements of premium table games, progressive units and side bets in the United States, primarily Ultimate Texas Hold ‘em®, Mississippi Stud®, Blackjack Switch®, Dragon Bonus® and Three Card Poker Progressive®. These placements were largely driven by favorable regulatory changes in Pennsylvania and Delaware that took effect during the prior fiscal year; and
|
|
o
|
New placements of premium table games and progressives in Singapore drove increased revenues of approximately $200.
|
|
·
|
Partially offset by a 91.5% decrease in PTG sales revenue:
|
|
o
|
Driven by a 75.0% decrease in sold units. The prior year period included conversions of leased to sold lifetime licenses of premium table games in the United States, primarily Three Card Poker® and Let it Ride Bonus®.
|
|
·
|
The overall increase in total revenues; and
|
|
·
|
The prior year period included the write-off of certain intangible licenses and related equipment totaling approximately $500.
|
|
·
|
The overall increase in gross profit; and
|
|
·
|
Partially offset by an increase in amortization of intangible assets.
|
Six Months Ended
|
||||||||||||||||
April 30,
|
Increase
|
Percentage
|
||||||||||||||
2011
|
2010
|
(Decrease)
|
Change
|
|||||||||||||
(In thousands, except for units/seats and per unit/seat amounts)
|
||||||||||||||||
PTG segment revenue:
|
||||||||||||||||
Royalties and leases
|
$ | 20,661 | $ | 18,110 | $ | 2,551 | 14.1 | % | ||||||||
Sales
|
894 | 879 | 15 | 1.7 | ||||||||||||
Service
|
57 | 72 | (15 | ) | (20.8 | ) | ||||||||||
Other
|
160 | 144 | 16 | 11.1 | ||||||||||||
Total sales and service revenue
|
1,111 | 1,095 | 16 | 1.5 | ||||||||||||
Total PTG segment revenue
|
$ | 21,772 | $ | 19,205 | $ | 2,567 | 13.4 | % | ||||||||
PTG segment gross profit
|
$ | 17,667 | $ | 15,252 | $ | 2,415 | 15.8 | % | ||||||||
PTG segment gross margin
|
81.1 | % | 79.4 | % | ||||||||||||
PTG segment operating income
|
$ | 15,760 | $ | 14,078 | $ | 1,682 | 11.9 | % | ||||||||
PTG segment operating margin
|
72.4 | % | 73.3 | % | ||||||||||||
PTG unit information:
|
||||||||||||||||
Premium units, end of period
|
2,425 | 2,288 | 137 | 6.0 | % | |||||||||||
Side bet units, end of period
|
1,935 | 1,769 | 166 | 9.4 | % | |||||||||||
Progressive units, end of period
|
724 | 513 | 211 | 41.1 | % | |||||||||||
Add-on units, end of period
|
155 | 74 | 81 | 109.5 | % | |||||||||||
Total revenue generating lease base
|
5,239 | 4,644 | 595 | 12.8 | % | |||||||||||
Average monthly lease/license price
|
$ | 657 | $ | 650 | $ | 7 | 1.1 | % | ||||||||
Sold during period
|
19 | 26 | (7 | ) | (26.9 | %) | ||||||||||
Average sales price
|
$ | 47,053 | $ | 33,808 | $ | 13,245 | 39.2 | % |
|
·
|
A 14.1% increase in royalties and leases revenue:
|
|
o
|
Increased placements of premium table games, progressive units and side bets in the United States, primarily Ultimate Texas Hold ‘em®, Mississippi Stud®, Blackjack Switch®, Dragon Bonus® and Three Card Poker Progressive®. These placements were largely driven by favorable regulatory changes in Pennsylvania and Delaware that took effect during the prior fiscal year; and
|
|
o
|
New placements of premium table games and progressives in Singapore drove increased revenues of approximately $400.
|
|
·
|
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 in the first quarter.
|
|
·
|
The overall increase in total revenues; and
|
|
·
|
The prior year period included the write-off of certain intangible licenses and related equipment totaling approximately $500.
|
|
·
|
The increase in gross profit referred to above.
|
|
·
|
Increase in amortization of intangible assets.
|
Three Months Ended
|
||||||||||||||||
April 30,
|
Increase
|
Percentage
|
||||||||||||||
2011
|
2010
|
(Decrease)
|
Change
|
|||||||||||||
(In thousands, except for units/seats and per unit/seat amounts)
|
||||||||||||||||
ETS segment revenue:
|
||||||||||||||||
Royalties and leases
|
$ | 3,514 | $ | 3,896 | $ | (382 | ) | (9.8 | %) | |||||||
Sales
|
6,846 | 7,513 | (667 | ) | (8.9 | ) | ||||||||||
Service
|
145 | 151 | (6 | ) | (4.0 | ) | ||||||||||
Other
|
1,292 | 884 | 408 | 46.2 | ||||||||||||
Total sales and service revenue
|
8,283 | 8,548 | (265 | ) | (3.1 | ) | ||||||||||
Total ETS segment revenue
|
$ | 11,797 | $ | 12,444 | $ | (647 | ) | (5.2 | %) | |||||||
ETS segment gross profit
|
$ | 4,837 | $ | 7,832 | $ | (2,995 | ) | (38.2 | %) | |||||||
ETS segment gross margin
|
41.0 | % | 62.9 | % | ||||||||||||
ETS segment operating income
|
$ | 1,719 | $ | 5,377 | $ | (3,658 | ) | (68.0 | %) | |||||||
ETS segment operating margin
|
14.6 | % | 43.2 | % | ||||||||||||
ETS unit information:
|
||||||||||||||||
Lease seats, end of quarter
|
2,678 | 2,352 | 326 | 13.9 | % | |||||||||||
Average monthly lease price
|
$ | 437 | $ | 552 | $ | (115 | ) | (20.8 | %) | |||||||
Sold seats during quarter
|
307 | 426 | (119 | ) | (27.9 | %) | ||||||||||
Average sales price
|
$ | 22,300 | $ | 17,636 | $ | 4,664 | 26.4 | % |
|
·
|
A decrease of 8.9% in sales revenue:
|
|
o
|
Decrease of 66.7% in Table Master® seats sold. The decrease in seats sold was partially offset by a 113.3% increase in average sales price. The prior year period included sales to several large customers in the United States as the result of the opening of several new jurisdictions, primarily in Florida and Indiana. These sales were made at substantial discounts. The net reduction in total Table Master® revenue was approximately $340; and
|
|
o
|
Decrease of 30.8% in Vegas Star® and Rapid Tables Games® seats sold in Australia, resulting in a net revenue reduction of approximately $1,600. Prior year revenues included several large sales to Australian casinos driven by favorable regulatory changes.
|
|
·
|
A decrease of 9.8% in royalties and leases revenue:
|
|
o
|
A decrease of 20.8% in average monthly 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 $1,140 during the three months ended April 30, 2011;
|
|
o
|
We have begun to return these Table Master® units to active service in other markets such as Mexico and South America, however the new placements are not yet generating average monthly lease prices and margins equivalent to the units removed in the prior year; and
|
|
o
|
The decrease in average monthly lease prices was partially offset by a 13.9% increase in seats on lease, driven primarily by Vegas Star® seats in New York, as well as Table Master® seats in Florida due to favorable regulatory changes in the prior year.
|
|
·
|
These decreases were partially offset by an increase of 46.2% in other revenue, driven by increased sales of peripherals and conversion kits for installed products in Macau.
|
|
·
|
Impact of foreign currency fluctuations.
|
|
o
|
Total revenue was positively impacted by approximately $620 due to the exchange effect of a weakening U.S. dollar
|
|
·
|
The overall decrease in revenue as noted above;
|
|
·
|
The unfavorable margin effect from the Table Master® units removed from Pennsylvania and Delaware; the removed units were generating average monthly lease prices and margins among the highest in our lease installed base; and
|
|
·
|
The Vegas Star® units sold in Australia in the prior year were at substantially favorable margins compared to current year sales.
|
|
·
|
The decreases in gross profit and gross margin noted above; and
|
|
·
|
An increase in R&D costs associated with the ETS segment.
|
Six Months Ended
|
||||||||||||||||
April 30,
|
Increase
|
Percentage
|
||||||||||||||
2011
|
2010
|
(Decrease)
|
Change
|
|||||||||||||
(In thousands, except for units/seats and per unit/seat amounts)
|
||||||||||||||||
ETS segment revenue:
|
||||||||||||||||
Royalties and leases
|
$ | 6,708 | $ | 7,510 | $ | (802 | ) | (10.7 | %) | |||||||
Sales
|
10,771 | 11,324 | (553 | ) | (4.9 | ) | ||||||||||
Service
|
280 | 298 | (18 | ) | (6.0 | ) | ||||||||||
Other
|
2,169 | 1,687 | 482 | 28.6 | ||||||||||||
Total sales and service revenue
|
13,220 | 13,309 | (89 | ) | (0.7 | ) | ||||||||||
Total ETS segment revenue
|
$ | 19,928 | $ | 20,819 | $ | (891 | ) | (4.3 | %) | |||||||
ETS segment gross profit
|
$ | 9,487 | $ | 11,751 | $ | (2,264 | ) | (19.3 | %) | |||||||
ETS segment gross margin
|
47.6 | % | 56.4 | % | ||||||||||||
ETS segment operating income
|
$ | 3,532 | $ | 6,900 | $ | (3,368 | ) | (48.8 | %) | |||||||
ETS segment operating margin
|
17.7 | % | 33.1 | % | ||||||||||||
ETS unit information:
|
||||||||||||||||
Lease seats, end of period
|
2,678 | 2,352 | 326 | 13.9 | % | |||||||||||
Average monthly lease price
|
$ | 417 | $ | 532 | $ | (115 | ) | (21.6 | %) | |||||||
Sold seats during period
|
480 | 604 | (124 | ) | (20.5 | %) | ||||||||||
Average sales price
|
$ | 22,440 | $ | 18,748 | $ | 3,692 | 19.7 | % |
|
·
|
A 4.9% decrease in sales revenue:
|
|
o
|
Decrease of 11.7% in Vegas Star® seats sold in Australia, resulting in a net revenue reduction of approximately $410. Prior year revenues included large sales to Australian casinos driven by favorable regulatory changes; and
|
|
o
|
Decrease of approximately $320 in Rapid Table Games® sales revenue. The prior year period included a large sale of Rapid Table Games® seats in Australia.
|
|
·
|
A decrease of 10.7% in royalties and leases revenue:
|
|
o
|
A decrease of 21.6% in average monthly 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 $2,490 during the six months ended April 30, 2011;
|
|
o
|
We have begun to return these Table Master® units to active service in other markets such as Mexico and South America, however the new placements are not yet generating average monthly lease prices equivalent to the units removed in the prior year; and
|
|
o
|
The decrease in average monthly lease prices was partially offset by a 13.9% increase in seats on lease, driven primarily by Vegas Star® seats in New York, as well as Table Master® seats in Florida due to favorable regulatory changes in the prior year.
|
|
·
|
These decreases were partially offset by a 28.6% increase in other revenue, driven by increased sales of peripherals and conversion kits for installed products in Macau.
|
|
·
|
Impact of foreign currency fluctuations:
|
|
o
|
Total revenue was positively impacted by approximately $880 due to the exchange effect of a weakening U.S. dollar.
|
|
·
|
The overall decrease in revenue as noted above;
|
|
·
|
The unfavorable margin effect from the Table Master® units removed from Pennsylvania and Delaware; the removed units were generating average monthly lease prices and margins among the highest in our lease installed base;
|
|
·
|
The Vegas Star® units sold in Australia in the prior year were at substantially favorable margins compared to current year sales; and
|
|
·
|
Partially offset by a decrease of approximately $500 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 decreases in gross profit and gross margin noted above; and
|
|
·
|
An increase in R&D costs associated with the ETS segment.
|
Three Months Ended
|
||||||||||||||||
April 30,
|
Increase
|
Percentage
|
||||||||||||||
2011
|
2010
|
(Decrease)
|
Change
|
|||||||||||||
(In thousands, except for units/seats and per unit/seat amounts)
|
||||||||||||||||
EGM segment revenue:
|
||||||||||||||||
Lease revenue
|
$ | 103 | $ | 58 | $ | 45 | 77.6 | % | ||||||||
Sales
|
17,158 | 5,222 | 11,936 | 228.6 | ||||||||||||
Other
|
1,107 | 1,792 | (685 | ) | (38.2 | ) | ||||||||||
Total sales and service revenue
|
18,265 | 7,014 | 11,251 | 160.4 | ||||||||||||
Total EGM segment revenue
|
$ | 18,368 | $ | 7,072 | $ | 11,296 | 159.7 | % | ||||||||
EGM segment gross profit
|
$ | 11,268 | $ | 3,866 | $ | 7,402 | 191.5 | % | ||||||||
EGM segment gross margin
|
61.3 | % | 54.7 | % | ||||||||||||
EGM segment operating income
|
$ | 8,393 | $ | 1,978 | $ | 6,415 | 324.3 | % | ||||||||
EGM segment operating margin
|
45.7 | % | 28.0 | % | ||||||||||||
EGM unit information:
|
||||||||||||||||
Lease seats, end of quarter
|
17 | 18 | (1 | ) | (5.6 | %) | ||||||||||
Sold during quarter
|
969 | 370 | 599 | 161.9 | % | |||||||||||
Average sales price
|
$ | 17,707 | $ | 14,114 | $ | 3,593 | 25.5 | % |
|
·
|
A 228.6% increase in sales revenue:
|
|
o
|
Driven by the 161.9% increase in units sold;
|
|
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 EGM machines. Placements of Equinox™ units began in July 2010 and totaled approximately 920 units in the current quarter;
|
|
o
|
Prior year sales revenue was down from historical levels due to market anticipation of the new Equinox™ cabinet; and
|
|
o
|
The 25.5% increase in average sales price was partially due to foreign 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 $2,100 due to the exchange effect of a weakening U.S. dollar.
|
|
·
|
The increases above were partially offset by a decrease of 38.2% 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;
|
|
·
|
Prior year sales were composed entirely of eStar™ cabinets, which had a higher production cost and lower margin than Equinox™. Current year sales are composed of approximately 95% Equinox™ cabinets; and
|
|
·
|
Improvements in material and production costs, due primarily to value engineering on the new Equinox™ cabinet.
|
|
·
|
The increases in total EGM revenue and gross profit as noted above; and
|
|
·
|
Partially offset by increased R&D costs related to the development of the new Equinox™ cabinet and related game content.
|
Six Months Ended
|
||||||||||||||||
April 30,
|
Increase
|
Percentage
|
||||||||||||||
2011
|
2010
|
(Decrease)
|
Change
|
|||||||||||||
(In thousands, except for units/seats and per unit/seat amounts)
|
||||||||||||||||
EGM segment revenue:
|
||||||||||||||||
Lease revenue
|
$ | 189 | $ | 109 | $ | 80 | 73.4 | % | ||||||||
Sales
|
23,294 | 8,678 | 14,616 | 168.4 | ||||||||||||
Other
|
1,982 | 3,595 | (1,613 | ) | (44.9 | ) | ||||||||||
Total sales and service revenue
|
25,276 | 12,273 | 13,003 | 105.9 | ||||||||||||
Total EGM segment revenue
|
$ | 25,465 | $ | 12,382 | $ | 13,083 | 105.7 | % | ||||||||
EGM segment gross profit
|
$ | 15,676 | $ | 6,552 | $ | 9,124 | 139.3 | % | ||||||||
EGM segment gross margin
|
61.6 | % | 52.9 | % | ||||||||||||
EGM segment operating income
|
$ | 10,157 | $ | 3,085 | $ | 7,072 | 229.2 | % | ||||||||
EGM segment operating margin
|
39.9 | % | 24.9 | % | ||||||||||||
EGM unit information:
|
||||||||||||||||
Lease seats, end of period
|
17 | 18 | (1 | ) | (5.6 | %) | ||||||||||
Sold during period
|
1,292 | 588 | 704 | 119.7 | % | |||||||||||
Average sales price
|
$ | 18,029 | $ | 14,759 | $ | 3,270 | 22.2 | % |
|
·
|
A 168.4% increase in sales revenue:
|
|
o
|
Driven by the 119.7% increase in units sold;
|
|
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 EGM machines. Placements of Equinox™ units began in July 2010 and totaled approximately 1,170 units in the current period;
|
|
o
|
Prior year sales revenue was down from historical levels due to market anticipation of the new Equinox™ cabinet; and
|
|
o
|
The 22.2% increase in average sales price was partially due to foreign exchange effects; the average sales price in Australian dollars increased 9.8%, reflecting higher sales prices for Equinox™ units.
|
|
·
|
Impact of foreign exchange fluctuations:
|
|
o
|
Total revenue was positively impacted by approximately $2,600 due to the exchange effect of a weakening U.S. dollar.
|
|
·
|
A decrease of 44.9% in other revenue, driven by a decrease in sales of conversion kits and other parts and peripherals. The prior year period included large sales of conversion kits.
|
|
·
|
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;
|
|
·
|
Prior year sales were composed entirely of eStar™ cabinets, which had a higher production cost and lower margin than Equinox™. Current year sales are composed of approximately 90% Equinox™ cabinets; and
|
|
·
|
Improvements in material and production costs, due primarily to value engineering on the new Equinox™ cabinet.
|
|
·
|
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.
|
April 30,
|
October 31,
|
Increase
|
Percentage
|
|||||||||||||
2011
|
2010
|
(Decrease)
|
Change
|
|||||||||||||
(In thousands, except ratios) | ||||||||||||||||
Cash and cash equivalents
|
$ | 16,983 | $ | 9,988 | $ | 6,995 | 70.0 | % | ||||||||
Working capital
|
$ | 77,695 | $ | 58,628 | $ | 19,067 | 32.5 | % | ||||||||
Current ratio
|
3.3 : 1
|
2.2 : 1
|
1:1 |
Six Months Ended
|
||||||||||||||||
April 30,
|
Increase
|
Percentage
|
||||||||||||||
2011
|
2010
|
(Decrease)
|
Change
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Net cash provided by operating activities
|
$ | 16,510 | $ | 27,521 | $ | (11,011 | ) | (40.0 | %) | |||||||
Net cash used in investing activities
|
(18,468 | ) | (13,686 | ) | 4,782 | 34.9 | % | |||||||||
Net cash provided by (used in) financing activities
|
8,861 | (3,660 | ) | 12,521 | 342.1 | % | ||||||||||
Effects of exchange rates
|
92 | 148 | (56 | ) | (37.8 | %) | ||||||||||
Net change in cash and cash equivalents
|
$ | 6,995 | $ | 10,323 |
Six Months Ended
|
||||||||||||||||
April 30,
|
Increase
|
Percentage
|
||||||||||||||
2011
|
2010
|
(Decrease)
|
Change
|
|||||||||||||
(In thousands) | ||||||||||||||||
Payments for products leased and held for lease
|
$ | (7,263 | ) | $ | (13,139 | ) | $ | (5,876 | ) | (44.7 | %) | |||||
Purchases of property and equipment
|
(2,001 | ) | (2,553 | ) | (552 | ) | (21.6 | %) | ||||||||
Purchases of intangible assets
|
(6,145 | ) | (2,171 | ) | 3,974 | 183.0 | % | |||||||||
Total capital expenditures
|
$ | (15,409 | ) | $ | (17,863 | ) |
·
|
An increase in cash used for inventory of approximately $8,600. Inventory increased by approximately $1,300 due to the exchange effect of a weakening U.S. dollar. The remaining increase in inventory is related to our expansion into new markets, pending installations across all segments globally, and an increase in trial inventory. As a result, inventory turns decreased from 3.2 times for the six months ended April 30, 2010 to 2.5 times as of April 30, 2011;
|
·
|
The decrease in accrued liabilities related to settlement of our class action lawsuits and shareholder derivative suit that was offset by a decrease in other current assets representing payment to the beneficiaries, see Note 12 to our Condensed Consolidated Financial Statements for more information;
|
·
|
A decrease in cash provided by accounts receivable of approximately $7,600. Average days sales outstanding (“DSO”) for the six months ended April 30, 2011 increased to approximately 74 days from approximately 60 days in the same prior year period, due primarily to heavy sales volume in the last month of the quarter;
|
·
|
Offset by stronger operating performance that led to an increase in net income of approximately $1,200; and
|
·
|
Offset by an increase in customer deposits and deferred revenue of approximately $3,000, primarily due to prior year period balance which included the recognition of revenue on a large transaction for which revenue was deferred until regulatory approval was granted.
|
·
|
Increased cash used for the acquisition of a business 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 $4,000 primarily related to the acquisition of intellectual property from Prime Table Games, see Note 2 to our Condensed Consolidated Financial Statements for more information; and
|
·
|
Offset by a decrease in payments for products leased and held for lease of approximately $5,900. The prior balance was primarily driven by the opening of two casinos in Singapore.
|
·
|
For the six months ended April 30, 2011, we received approximately $16,500 proceeds from our Revolver which was primarily used for Newton and Prime Table Games acquisition, as described above, compared to prior period where we received approximately $8,200 from our $100,000 senior secured credit facility (the “Deutsche Bank Senior Secured Credit Facility”). Our Deutsche Bank Senior Secured Credit Facility was satisfied and terminated in October 2010; and
|
·
|
Offset by decrease in cash used for debt payments of approximately $1,900. Debt payments during current period primarily related to the payment on our Revolver of $10,000. Debt payments during prior year period related primarily to partial repayment of amounts outstanding under our Deutsche Bank Senior Secured Credit Facility and our $65,000 term loan facility, which were 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)
|
|||||||||||||
February 1 through February 28, 2011
|
-
|
$
|
-
|
-
|
$
|
21,077
|
||||||||||
March 1 through March 31, 2011
|
-
|
-
|
-
|
21,077
|
||||||||||||
April 1 through April 30, 2011
|
-
|
-
|
-
|
21,077
|
||||||||||||
Total
|
-
|
$
|
-
|
-
|
10.1
|
Employment agreement by and between Shuffle Master, Inc. and Michael Gavin Isaacs dated March 16, 2011 (incorporate by reference to Exhibit 10.1 to our Current Report on Form 8-K filed March 22 2011).
|
|
31.1
|
Certification of 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 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: June 8, 2011
|
|
/s/ MICHAEL GAVIN ISAACS
|
|
Michael Gavin Isaacs
Chief Executive Officer
(Principal Executive Officer)
|
|
/s/ LINSTER W. FOX
|
|
Linster W. Fox
Chief Financial Officer
(Principal Financial Officer)
|
Date: June 8, 2011
|
|
/s/ MICHAEL GAVIN ISAACS
|
|
Michael Gavin Isaacs
Chief Executive Officer
|
Date: June 8, 2011
|
|
/s/ LINSTER W. FOX
|
|
Linster W. Fox
Chief Financial Officer
|
Date: June 8, 2011
|
|
/s/ MICHAEL GAVIN ISAACS
|
|
Michael Gavin Isaacs
Chief Executive Officer
|
Date: June 8, 2011
|
|
/s/ LINSTER W. FOX
|
|
Linster W. Fox
Chief Financial Officer
|
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