Note 7 - Share-Based Compensation

9 Months Ended

Jul. 31, 2011

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

7. SHARE-BASED COMPENSATION

Share-based award plans.  In February 2004, our board of directors adopted and, in March 2004, our shareholders approved the Shuffle Master, Inc. 2004 Equity Incentive Plan (the “2004 Plan”) and the Shuffle Master, Inc. 2004 Equity Incentive Plan for Non-Employee Directors (the “2004 Directors’ Plan”). These approved plans replaced our prior plans and no further options may be granted from the prior plans. Both the 2004 Plan and the 2004 Directors’ Plan provide for the grant of stock options, stock appreciation rights (none issued) and restricted stock. In addition, the 2004 Plan provides for the grant of restricted stock units. Awards granted under the plans (collectively “Awards”) may be granted individually or in any combination. Stock options may not be granted at an exercise price less than the market value of our common stock on the date of grant and may not be subsequently repriced. Equity granted under the 2004 Plan generally vests in equal increments over four years and expires in ten years. Equity granted under the 2004 Directors’ Plan generally vests over periods of one to two years.

The 2004 Plan provides for the grants of Awards to our officers, other employees and contractors. The maximum number of Awards which may be granted is 2,700 of which no more than 1,890 may be granted as restricted stock. The 2004 Directors’ Plan provides for the grants of Awards to our non-employee directors. The maximum number of Awards which may be granted is 1,125 of which no more than 788 may be granted as restricted stock.

In January 2009, our board of directors adopted and, in March 2009, our shareholders approved the Shuffle Master, Inc. 2004 Equity Incentive Plan (as amended and restated on January 28, 2009) (the “Amended 2004 Plan”). The Amended 2004 Plan increased the number of shares available for issuance in addition to other related technical changes. Subject to the Amended 2004 Plan, the aggregate number of shares that may be granted under the Amended 2004 Plan may not exceed 5,200 shares of which no more than 2,590 shares may be granted as restricted stock.

As of July 31, 2011, under the Amended 2004 Plan and 2004 Directors’ Plan, there were 1,600 and 202 shares available for grant, respectively.

A summary of activity related to stock options is presented below:

						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		555			10.86
Exercised		(462	)		4.66
Forfeited or expired		(231	)		16.26
Outstanding at July 31, 2011		4,702		$	13.98		5.4	$	5,086
Fully vested and expected to vest at July 31, 2011		4,671		$	14.05		5.3	$	5,060
Exercisable at July 31, 2011		3,298		$	15.09		4.2	$	3,381

For the three months ended July 31, 2011 and 2010, we issued 28 and 16 stock options, with an aggregate fair market value of $157 and $78, respectively. For the nine months ended July 31, 2011 and 2010, we issued 555 and 707 stock options, with an aggregate fair market value of $3,142 and $2,907, respectively. For the three months ended July 31, 2011, 73 stock options were exercised and $28 of related tax benefit was recognized and for the nine months ended July 31, 2011, 462 stock options were exercised and $71 of related tax benefit was recognized. As of July 31, 2011, there was approximately $4,079 of unamortized compensation expense related to stock options, which expense is expected to be recognized over a weighted-average period of 1.8 years.

A summary of activity related to restricted stock is presented below:

				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		339			10.13
Vested		(139	)		15.95
Forfeited		(35	)		9.16
Nonvested at July 31, 2011		521		$	12.83		1.29	$	4,855
Expected to vest		504		$	12.91		1.25	$	4,696

The total value of each restricted stock grant, based on the fair market value of the stock on the date of grant, is amortized to compensation expense over the related vesting period. As of July 31, 2011, there was approximately $3,032 of unamortized compensation expense related to restricted stock, which expense is expected to be recognized over a weighted-average period of 2.0 years.

Recognition of compensation expense.  The following table shows information about compensation costs recognized:

	Three Months Ended						Nine Months Ended
	July 31,						July 31,
	2011			2010			2011			2010
	(In thousands)
Compensation costs:
Stock options	$	483		$	1,128		$	1,471		$	2,677
Restricted stock		223			341			713			647
Total compensation cost	$	706		$	1,469		$	2,184		$	3,324
Related tax benefit	$	(245	)	$	(458	)	$	(761	)	$	(1,032	)

Option valuation models require the input of certain assumptions and changes in assumptions used can materially affect the fair value estimate. Expected volatility and dividends are based on historical factors related to our common stock. Expected term represents the estimated weighted-average time between grant and employee exercise. Risk free interest rate is based on U.S. Treasury rates appropriate for the expected term. We estimate the fair value of each stock option award on the grant date using the Black-Scholes valuation model incorporating the weighted-average assumptions noted in the following table:

	Three Months Ended		Nine Months Ended
	July 31, 2011		July 31, 2011
Option valuation assumptions:
Expected dividend yield		None		None
Expected volatility		63.8%		64.8%
Risk-free interest rate		1.6%		1.7%
Expected term		4.4 years		4.4 years