shuffle_10q-043012.htm

10-Q 1 shuffle_10q-043012.htm FORM 10-Q shuffle_10q-043012.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2012
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission file number: 0-20820

SHUFFLE MASTER, INC.

(Exact name of registrant as specified in its charter)

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)

Registrant’s Telephone Number, Including Area Code: (702) 897-7150

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer x

Non-accelerated filer o

(Do not check if a smaller reporting company)

Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of May 31, 2012, there were 55,801,370 shares of our $.01 par value common stock outstanding.

SHUFFLE MASTER, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED APRIL 30, 2012

TABLE OF CONTENTS

		Page
PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited):
	Condensed Consolidated Statements of Operations for the Three and Six Months ended April 30, 2012 and 2011	3
	Condensed Consolidated Balance Sheets as of April 30, 2012 and October 31, 2011	4
	Condensed Consolidated Statements of Cash Flows for the Six Months ended April 30, 2012 and 2011	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46
Item 4.	Controls and Procedures	46
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	47
Item 1A.	Risk Factors	47
Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	48
Item 3.	Defaults Upon Senior Securities	49
Item 4.	Mine Safety Disclosures	49
Item 5.	Other Information	49
Item 6.	Exhibits	50
Signatures		51

PART I

ITEM 1. FINANCIAL STATEMENTS

SHUFFLE MASTER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended April 30,						Six Months Ended April 30,
	2012			2011			2012			2011
Revenue:
Product leases and royalties	$	26,947		$	24,264		$	52,900		$	47,840
Product sales and service		39,107			35,619			69,207			55,858
Total revenue		66,054			59,883			122,107			103,698
Costs and expenses:
Cost of leases and royalties		9,427			8,354			18,378			15,536
Cost of sales and service		14,138			15,435			25,419			22,900
Gross profit		42,489			36,094			78,310			65,262
Selling, general and administrative		19,804			17,060			36,984			33,261
Research and development		7,925			6,883			15,452			12,799
Total costs and expenses		51,294			47,732			96,233			84,496

Income from operations		14,760			12,151			25,874			19,202

Other income (expense):
Interest income		174			126			313			252
Interest expense		(378	)		(671	)		(855	)		(1,372	)
Other, net		(146	)		(1,118	)		29			(961	)
Total other income (expense)		(350	)		(1,663	)		(513	)		(2,081	)
Income before income taxes		14,410			10,488			25,361			17,121
Income tax provision		4,675			2,542			7,977			4,371
Net income	$	9,735		$	7,946		$	17,384		$	12,750

Basic earnings per share:	$	0.17		$	0.15		$	0.31		$	0.24
Diluted earnings per share:	$	0.17		$	0.14		$	0.31		$	0.23

Weighted average shares outstanding:
Basic		55,751			54,374			55,408			54,253
Diluted		56,653			55,010			56,154			54,953

See Notes to Unaudited Condensed Consolidated Financial Statements.

SHUFFLE MASTER, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited)

	April 30, 2012		October 31, 2011

ASSETS
Current assets:
Cash and cash equivalents	$	22,964	$	22,189
Accounts receivable, net of allowance for bad debts of $465 and $402		38,952		39,713
Investment in sales-type leases and notes receivable, net of allowance for bad debts of $26 and $44		5,753		5,006
Inventories		27,138		24,335
Prepaid income taxes		6,654		3,279
Deferred income taxes		4,935		4,911
Other current assets		5,898		4,291
Total current assets		112,294		103,724
Investment in sales-type leases and notes receivable, net of current portion and net of allowance for bad debts of $2 and $5		4,857		3,704
Products leased and held for lease, net		35,184		35,196
Property and equipment, net		15,155		12,849
Intangible assets, net		67,193		66,517
Goodwill		85,393		85,392
Deferred income taxes		2,850		3,038
Other assets		2,490		2,467
Total assets	$	325,416	$	312,887

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	4,415	$	5,001
Accrued liabilities and other current liabilities		19,887		21,135
Deferred income taxes		89		96
Customer deposits		3,333		3,407
Income tax payable		4,218		2,595
Deferred revenue		4,031		3,862
Current portion of long-term debt		501		508
Total current liabilities		36,474		36,604
Long-term debt, net of current portion		22,750		38,757
Other long-term liabilities		2,849		2,969
Deferred income taxes		2,549		942
Total liabilities		64,622		79,272
Commitments and Contingencies (See Note 11)
Shareholders' equity:
Common stock, $0.01 par value; 151,368 shares authorized; 55,698 and 54,196 shares issued and outstanding		557		542
Additional paid-in capital		131,188		114,306
Retained earnings		98,222		80,838
Accumulated other comprehensive income		30,827		37,929
Total shareholders' equity		260,794		233,615
Total liabilities and shareholders' equity	$	325,416	$	312,887

See Notes to Unaudited Condensed Consolidated Financial Statements.

SHUFFLE MASTER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, except per share amounts)

(Unaudited)

	Six Months Ended April 30,
	2012			2011
Cash flows from operating activities:
Net income	$	17,384		$	12,750
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		12,397			11,876
Amortization of debt issuance costs and debt discount		238			238
Share-based compensation		2,049			1,478
Provision for bad debts		108			101
Write-down for inventory obsolescence		707			113
Loss (profit) on sale of leased assets		(603	)		(2,379	)
Loss (gain) on sale of assets		91			96
Excess tax benefit from exercise of stock options		(1,207	)		(771	)
Changes in operating assets and liabilities:
Accounts receivable and investment in sales-type leases and notes receivable		(1,970	)		(1,221	)
Inventories		(4,248	)		(5,668	)
Accounts payable and accrued liabilities		(2,580	)		(16,533	)
Customer deposits and deferred revenue		4			777
Prepaid income taxes		(3,377	)		2,305
Income taxes payable		1,466			2,404
Deferred income taxes		2,277			1,340
Other		(2,132	)		9,604
Net cash provided by operating activities		20,604			16,510

Cash flows from investing activities:
Proceeds from sale of leased assets		1,029			3,810
Proceeds from sale of assets		-			76
Payments for products leased and held for lease		(6,706	)		(7,263	)
Purchases of property and equipment		(4,240	)		(2,001	)
Purchases of intangible assets		(4,103	)		(6,145	)
Acquisition of business		(5,500	)		(6,499	)
Other		(454	)		(446	)
Net cash used in investing activities		(19,974	)		(18,468	)

Cash flows from financing activities:
Proceeds from Revolver		6,000			16,500
Debt payments on Revolver		(22,000	)		(10,000	)
Proceeds from issuances of common stock, net		14,128			1,610
Excess tax benefit from exercise of stock options		1,207			771
Other		(30	)		(20	)
Net cash provided by (used in) financing activities		(695	)		8,861

Effect of exchange rate changes on cash and cash equivalents		840			92

Net increase in cash and cash equivalents		775			6,995
Cash and cash equivalents, beginning of period		22,189			9,988
Cash and cash equivalents, end of period	$	22,964		$	16,983

See Notes to Unaudited Condensed Consolidated Financial Statements.

SHUFFLE MASTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. DESCRIPTION OF BUSINESS AND INTERIM BASIS OF PRESENTATION

Description of business. Unless the context indicates otherwise, references to “Shuffle Master, Inc.,” “we,” “us,” “our,” or the “Company,” include Shuffle Master, Inc. and its consolidated subsidiaries.

We lease, license and sell our products. When we lease or license our products, we generally negotiate a month-to-month operating lease. When we sell our products, we offer our customers a choice between a sale, a longer-term sales-type lease or other long-term financing. We offer our products worldwide in markets that are highly regulated. We manufacture our products at our headquarters and manufacturing facility in Las Vegas, Nevada, as well as at our Australian headquarters and manufacturing facility in Milperra, New South Wales, Australia. In addition, we outsource the manufacturing of certain of our sub-assemblies in the United States, Europe and Asia.

Utility. Our Utility segment develops products for licensed casino operators that enhance table game speed, productivity, profitability and security. Utility products include automatic card shufflers and roulette chip sorters. This segment also includes our i-Shoe® Auto card reading shoe that gathers data and enables casinos to track table game play and our i-Score™ baccarat viewer that displays current game results and trends. These products are intended to cost-effectively provide licensed casino operators and other users with data on table game play for security and marketing purposes, which in turn allows them to increase their profitability.

Proprietary Table Games. Our PTG segment develops and delivers proprietary table games that enhance our casino customers' and other licensed operators' table game operations. Products in this segment include our proprietary table games, side bets, add-ons and progressives as well as our newly introduced i-Gaming products, which feature online versions of our table games, social gaming, and mobile applications. Our proprietary content and features are also added to public domain games such as poker, baccarat, pai gow poker and blackjack table games and to electronic platforms such as Table Master® and i-Table®.

Electronic Table Systems. Our ETS segment develops and delivers various products involving popular table game content using e-Table game platforms. Our primary ETS products are i-Table®, Table Master®, Vegas Star® and Rapid Table Games®. Our i-Table® platform combines an electronic betting interface with a live dealer who deals the cards from our card reading shoe or shuffler that is designed to improve game speed and security while reducing many operating expenses associated with live tables. Our Table Master® and Vegas Star® products feature a virtual dealer which enables us to offer table game content in both traditional gaming markets and in markets where live table games are not permitted, such as some racinos, video lottery and arcade markets. Our Rapid Table Games® product enables the automation of certain components of traditional table games such as data collection, placement of bets, collection of losing bets and payment of winning bets combined with live dealer and game outcomes. This automation provides benefits to both casino operators and players, including greater security and faster speed of play.

Electronic Gaming Machines. Our EGM segment develops and delivers our PC-based video slot machines into select markets, primarily in Australasia. We offer a selection of video slot titles which include a range of bonus round options that can be configured as a network of machines or as stand-alone units. In addition to selling the full EGM complement, we sell software conversion kits that allow existing EGM terminals to be converted to other games on the PC3 and PC4 platform. Popular titles for our EGMs include Cats Hats & Bats™, Eureka Gold Mine 2™, Emerald Fortunes™ and King of Babylon™. In addition, we continue to develop a popular range of games utilizing the Pink Panther™ brand, under license from Metro-Goldwyn-Mayer Studios, Inc. consumer products.

Basis of presentation. The accompanying Unaudited Condensed Consolidated Financial Statements include the results of operations, financial position and cash flows of Shuffle Master, Inc. and its consolidated subsidiaries. All material intercompany balances have been eliminated.

In the opinion of our management, the accompanying Unaudited Condensed Consolidated Financial Statements include all adjustments necessary to fairly state, in all material respects, our results for the periods presented. These Condensed Consolidated Financial Statements have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with Generally Accepted Accounting Principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and accompanying notes included in our 2011 Annual Report on Form 10-K filed with the SEC on January 5, 2012. The results of operations for the three and six months ended April 30, 2012 are not necessarily indicative of results to be expected for the entire fiscal year.

Reclassification. The Company revised its October 31, 2011, condensed consolidated balance sheet to appropriately classify amounts that were previously included within accounts receivable as current investment in sales-type leases and notes receivable. This revision resulted in a $3.2 million increase in the current investment in sales-type leases and notes receivable with a corresponding reduction to accounts receivable. The revision, which the Company determined is not material, had no impact on total current assets, results of operations or cash flows.

Use of estimates and assumptions. The preparation of our Condensed Consolidated Financial Statements in conformity with GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting periods. Future events and their effects cannot be predicted with certainty; accordingly, our accounting estimates require the exercise of judgment. The accounting estimates used in the preparation of our Condensed Consolidated Financial Statements will change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. We evaluate and update our assumptions and estimates on an ongoing basis. Actual results could differ from those estimates.

Revenue recognition. We recognize revenues when all of the following have been satisfied:

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.

Revenues are reported net of incentive rebates and discounts. Amounts billed prior to completing the earnings process are deferred until revenue recognition criteria are met.

Product lease and royalty revenue — Lease and royalty revenue is earned from the leasing of our tangible products and the licensing of our intangible products, such as our proprietary table games. When we lease or license our products, we generally negotiate month-to-month fixed fee contracts, or to a lesser extent, enter into participation arrangements whereby casinos pay a fee to us based on a percentage of net win. Lease and royalty revenue commences upon the completed installation of the product. Lease terms are generally cancellable with 30 days' notice. We recognize revenue from our leases and licenses upon installation of our product on a month to month basis.

Product sales and service revenue — We generate sales revenue through the sale of equipment in each product segment, including sales revenue from sales-type leases and the sale of lifetime licenses for our proprietary table games. Our credit sales terms are primarily 60 days or less. Financing for intangible property and sales-type leases for tangible property have payment terms ranging generally from 24 to 36 months and are interest-bearing at market interest rates. Revenue from the sale of equipment is recorded in accordance with the contractual shipping terms. Products placed with customers on a trial basis are not recognized as revenue until the trial period ends, the customer accepts the product and all other relevant criteria have been met. If a customer purchases existing leased equipment, revenue is recorded on the effective date of the purchase agreement. Revenue on service and warranty contracts is recognized as the services are provided over the term of the contracts, which are generally one year. Revenue from the sale of lifetime licenses, under which we have no continuing obligation, is recorded on the effective date of the license agreement.

Multiple element arrangements — Some of our revenue arrangements contain multiple deliverables, such as a product sale combined with a service element or the delivery of a future product. Most of our products and services qualify as separate units of accounting. When vendor specific objective evidence or third-party evidence is not available, the management's best estimate of selling price ("BESP") is the amount we would sell the product or service for individually. The determination of BESP is made based on our normal pricing and discounting practices, which consider multiple factors, such as market conditions, competitive landscape, internal costs and profit objectives. Revenues allocated to future performance obligations elements are deferred and will be recognized upon delivery and customer acceptance.

Fair value measurement disclosure. In the current quarter, we adopted an Accounting Standards Update (“ASU”) on how to measure fair value and on what disclosures to provide about fair value measurements, which expands disclosure requirements particularly for Level 3 inputs to include following:

·	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,

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.

Recently issued accounting standards or updates – not yet adopted

Comprehensive income – In June 2011, FASB issued an ASU on presentation of comprehensive income to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. This update changes the requirements for the presentation of other comprehensive income, eliminating the option to present components of other comprehensive income as part of the statement of stockholders' equity, among other items. The guidance requires that all non-owner changes in stockholders' equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements.

This ASU will be effective for our first quarter of fiscal 2013 and as the update only requires a change in presentation, we do not expect the update to have a material impact on our financial statements.

2. SELECTED BALANCE SHEET DATA

The following provides additional disclosures for selected balance sheet accounts:

	April 30, 2012		October 31, 2011
	(In thousands)
Net inventories:
Raw materials and component parts	$	13,957	$	12,984
Work-in-process		3,874		3,947
Finished goods		9,307		7,404
Total	$	27,138	$	24,335

	April 30, 2012		October 31, 2011
	(In thousands)
Other current assets:
Other prepaid expenses		2,944		2,302
Other receivables		2,239		1,271
Other		715		718
Total	$	5,898	$	4,291

	April 30, 2012			October 31, 2011
	(In thousands)
Products leased and held for lease:
Utility	$	49,426		$	47,073
Less: accumulated depreciation		(33,090	)		(29,891	)
Utility, net		16,336			17,182

Proprietary Table Games		8,623			6,158
Less: accumulated depreciation		(3,879	)		(2,496	)
Proprietary Table Games, net		4,744			3,662

Electronic Table Systems		27,298			28,749
Less: accumulated depreciation		(15,470	)		(15,571	)
Electronic Table Systems, net		11,828			13,178

Electronic Gaming Machines		2,763			1,266
Less: accumulated depreciation		(487	)		(92	)
Electronic Gaming Machines, net		2,276			1,174

Total, net	$	35,184		$	35,196

	April 30, 2012		October 31, 2011
	(In thousands)
Accrued and other current liabilities:
Accrued compensation		10,897		13,932
Accrued taxes		2,352		2,124
Other accrued liabilities		6,638		5,079
Total	$	19,887	$	21,135

3. INTANGIBLE ASSETS AND GOODWILL

Amortizable intangible assets. All of our recorded intangible assets, excluding goodwill and the StargamesTM and CARDTM tradenames, are subject to amortization. We amortize our intangible assets as the economic benefits of the intangible asset are consumed or otherwise used up. Amortization expense was $2.3 million and $2.5 million for the three months ended April 30, 2012 and 2011, respectively and $4.6 and $4.9 million for the six months ended April 30, 2012 and 2011, respectively. Amortization expenses are included in cost of leases and royalties and cost of sales and service, except for customer relationships which are included in selling, general and administrative expenses.

Amortizable intangible assets are comprised of the following:

	Weighted Average Useful Life	April 30, 2012			October 31, 2011
		(In thousands)
Amortizable intangible assets:

Patents, games and products	10 years	$	67,756		$	68,999
Less: accumulated amortization			(52,061	)		(52,145	)
			15,695			16,854
Customer relationships	10 years		26,715			25,688
Less: accumulated amortization			(13,879	)		(12,829	)
			12,836			12,859
Licenses and other	6 - 9 years		22,750			18,925
Less: accumulated amortization			(8,720	)		(7,581	)
			14,030			11,344
Total		$	42,561		$	41,057

The increase in amortizable intangible assets for the six months ended April 30, 2012 relates to our purchase of table games intellectual property and acquisition of licenses to be used in our EGM segment.

Tradenames. Intangibles with an indefinite life, consisting of the Stargames™ and CARD™ tradenames, are not amortized, and were $24.6 million and $25.5 million as of April 30, 2012 and October 31, 2011, respectively.

Goodwill. Changes in the carrying amount of goodwill for the years ended October 31, 2010, 2011 and the six months ended April 30, 2012, are as follows:

Activity by Segment	Utility			Proprietary Table Games		Electronic Table Systems			Electronic Gaming Machines			Total
	(In thousands)

Goodwill	$	42,560		$	9,326	$	34,188		$	11,995		$	98,069
Accumulated impairments		-			-		(22,137	)		-			(22,137	)
Balance as of October 31, 2010	$	42,560		$	9,326	$	12,051		$	11,995		$	75,932

Foreign currency translation adjustment		1,459			-		1,140			1,135		$	3,734
Acquisition		4,799			-		-			-			4,799
Other		-			927		-			-			927
Balance as of October 31, 2011	$	48,818		$	10,253	$	13,191		$	13,130		$	85,392

Foreign currency translation adjustment		(2,635	)		-		(410	)		(408	)	$	(3,453	)
Acquisition		-			3,000		-			-			3,000
Other		-			454		-			-			454
Balance as of April 30, 2012	$	46,183		$	13,707	$	12,781		$	12,722		$	85,393

The $3.0 million of additional goodwill in our PTG segment relates to the acquisition of games and intellectual property that were treated as a business acquisition for accounting purposes.

The $0.5 million of additional goodwill in our PTG segment relates to our acquisition of certain assets from Bet Technology, Inc. (“BTI”) in 2004. In 2004, we recorded an initial estimated liability of $7.6 million for contingent installment payments computed as the excess fair value of the acquired assets over the fixed installments and other direct costs. In November 2004, we began paying monthly note installments based on a percentage of certain revenue from BTI games for a period of up to ten years, not to exceed $12.0 million. The final principal and interest payment related to our initial estimated liability of $7.6 million was paid in February 2009 and all payments made subsequently have been recorded as additional goodwill. As of April 30, 2012, we have paid approximately $11.0 million of the $12.0 million maximum amount.

4. DEBT

Debt consisted of the following:

	April 30, 2012			October 31, 2011
	(In thousands)
Revolver	$	21,446		$	37,446
Other long term debt		1,805			1,819
Total Debt		23,251			39,265
Less: current portion		(501	)		(508	)
Total long-term debt	$	22,750		$	38,757

$200.0 million senior secured revolving credit facility. On October 29, 2010, we entered into a senior secured credit agreement (the “Senior Secured Revolving Credit Facility”) with Wells Fargo Securities, LLC and Banc of America Securities LLC, as joint lead arrangers and joint lead bookrunners, Bank of America, N.A., as syndication agent, and Union Bank, N.A., as documentation agent. The Senior Secured Revolving Credit Facility provides for senior secured credit facilities in an aggregate principal amount of $200.0 million consisting of a 5-year revolving credit facility (the “Revolver”) in an aggregate principal amount of $200.0 million with a sub-facility for letters of credit of $25.0 million, a sub-facility for multicurrency borrowings in Euros, Australian dollars and Canadian dollars of $25.0 million, and a sub-facility for swing line loans of $20.0 million, each on customary terms and conditions. The Senior Secured Revolving Credit Facility includes an option to increase the Revolver to $300.0 million, which would require syndication approval.

Loans under the Revolver (other than Swing Line Loans, as defined) bear interest at the Base Rate, as defined, or LIBOR, as elected by us. Base Rate interest is calculated at the Base Rate plus the applicable margin and the Base Rate is the highest of:

the Federal Funds Rate plus .50%;

the prime commercial lending rate of the Administrative Agent, as defined; and

the one month LIBOR rate for such day plus 2.00%.

Swing Line Loans bear interest at the Base Rate plus the applicable margin. Our effective interest rate as of April 30, 2012 was 2.0%. Borrowings under the Revolver may be used for working capital, capital expenditures and general corporate purposes (including share repurchases).

As of April 30, 2012, the amount drawn under the Revolver was $21.4 million and after considering restrictive financial covenants under the Senior Secured Revolving Credit Facility, we had approximately $178.6 million of available remaining credit under the Revolver. The Revolver matures on October 29, 2015.

Covenants. Our Senior Secured Revolving Credit Facility contains three financial maintenance covenants requiring us to maintain a Total Leverage Ratio, as defined therein, of not more than 3.75 to 1.0, a Senior Leverage Ratio, as defined therein, of not more than 3.0 to 1.0 until October 31, 2013 and not more than 2.75 to 1.00 after October 31, 2013 and Interest Expense Coverage Ratio, as defined therein, in excess of 3.0 to 1.0 at the end of any fiscal quarter. As of April 30, 2012, our Total Leverage Ratio, Senior Leverage Ratio and Interest Expense Coverage Ratio were 0.28 to 1.0, 0.26 to 1.0 and 50.19 to 1.0, respectively.

Guarantors and collateral. The Revolver obligations under our Senior Secured Revolving Credit Facility are guaranteed by each existing and future wholly-owned domestic subsidiary of ours that is not an immaterial subsidiary and are secured by a first priority lien on substantially all of our and our guarantors’ assets.

5. SHAREHOLDERS’ EQUITY

Common stock repurchases. Our board of directors periodically authorizes us to repurchase shares of our common stock. As of April 30, 2012, $21.1 million remained outstanding under our board authorization. We cancel shares that are repurchased. No shares were repurchased during the three and six months ended April 30, 2012. Although we generally prioritize bank debt reduction over share repurchases we may consider share repurchases when there are anomalies in the share value created by, but not limited to, market conditions.

The timing of our common stock repurchases pursuant to our board of directors’ authorization is dependent on future opportunities and on our views, as they may change from time to time, as to the most prudent uses of our capital resources, including cash and borrowing capacity.

Other comprehensive income. For the three and six months ended April 30, 2012 and 2011, other comprehensive income consisted primarily of foreign currency translation adjustments. The following table provides information related to other comprehensive income:

	Three Months Ended April 30,					Six Months Ended April 30,
	2012			2011		2012			2011
Net income (loss)	$	9,735		$	7,946	$	17,384		$	12,750
Currency translation adjustment		(1,539	)		15,281		(7,102	)		16,101
Total other comprehensive income (loss)	$	8,196		$	23,227	$	10,282		$	28,851

Comprehensive income consists of two components, net income and other comprehensive income. Other comprehensive income refers to revenue, expenses, gains and losses that under GAAP are recorded as an element of shareholders’ equity but are excluded from net income. The Company’s other comprehensive income consists of foreign currency translation adjustments from those subsidiaries not using the U.S. dollar as their functional currency.

Additional paid in capital. For the six months ended April 30, 2012, the activity in additional paid in capital consisted of $14.1 million in proceeds received from stock option exercises and $2.8 million in share-based compensation expense and related tax effect/benefit from stock option activity.

6. 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 2.7 million of which no more than 1.9 million 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 1.1 million of which no more than 0.8 million 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 5.2 million shares of which no more than 2.6 million shares may be granted as restricted stock.

As of April 30, 2012, under the Amended 2004 Plan and 2004 Directors’ Plan, there were 0.9 million and 0.2 million shares available for grant, respectively.

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

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
	(In thousands, except per share amount)
Outstanding at November 1, 2011		4,638		$	14.04
Granted		430			12.13
Exercised		(1,289	)		10.96
Forfeited or expired		(243	)		19.73

Outstanding at April 30, 2012		3,536		$	14.54		5.8	$	20,837

Fully vested and expected to vest at April 30, 2012		3,491		$	14.58		5.7	$	20,557

Exercisable at April 30, 2012		2,369		$	16.75		4.3	$	11,941

There were no stock options granted during the three months ended April 30, 2012 and the weighted average grant date fair value of stock options granted during the six months ended April 30, 2012 was $6.23. The weighted average grant date fair value of stock options granted during the three and six months ended April 30, 2011 was $5.16 and $5.67, respectively.

For the three and six months ended April 30, 2012, 1.0 million and 1.3 million stock options were exercised, respectively. The tax effect/benefit from stock option exercises affected our deferred tax asset or income tax payable as well as our additional paid-in capital by an equal amount and had no effect on our income tax provision. As of April 30, 2012, there was approximately $5.2 million of unamortized compensation expense related to stock options, which expense is expected to be recognized over a weighted-average period of 1.9 years.

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

	Shares			Weighted Average Grant-Date Fair Value		Remaining Vesting Period		Aggregate Intrinsic Value
	(In thousands, except per share amount)
Nonvested at November 1, 2011		394		$	10.53
Granted		455			12.35
Vested		(134	)		11.41
Forfeited		(14	)		6.40

Nonvested at April 30, 2012		701		$	11.63		1.86	$	12,392

Expected to vest		666		$	11.61		1.82	$	11,775

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 April 30, 2012, there was approximately $7.3 million 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 April 30,						Six Months Ended April 30,
	2012			2011			2012			2011
	(In thousands)
Compensation costs:
Stock options	$	512		$	467		$	1,003		$	988
Restricted stock		605			276			1,046			490
Total compensation cost	$	1,117		$	743		$	2,049		$	1,478
Related tax benefit	$	(389	)	$	(260	)	$	(713	)	$	(516	)

Option valuation models require the input of certain assumptions and changes in assumptions used can materially affect the fair value estimate. Expected volatility is based on a combination of implied and historical factors related to our common stock. Expected term represents the estimated weighted-average time between grant date and its exercise date and is based on historical factors. Expected dividend yield is based on our expectation that dividends will not be paid within the average expected life of existing options. 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 April 30, 2012		Six Months Ended April 30, 2012
Option valuation assumptions:
Expected dividend yield		N/A	None
Expected volatility		N/A		64.9	%
Risk-free interest rate		N/A		0.7	%
Expected term		N/A	4.5 years

7. INCOME TAXES

Our effective income tax rate from continuing operations for the three and six months ended April 30, 2012 was 32.4% and 31.5%, respectively. Our effective income tax rate from continuing operations for the three and six months ended April 30, 2011 was 24.2% and 25.5%, respectively. The higher effective income tax rate for the six months ended April 30, 2012 compared to the prior year period is attributable to nondeductible expenses recorded in the current period for transaction costs related to the Ongame (as defined below under Note 11) acquisition and changes in valuation allowances. Our effective income tax rate may fluctuate due to changes in the amount and mix of domestic and foreign income, changes in tax legislation, changes in valuation allowances and changes in assessments of uncertain tax positions and related accumulated interest and penalties.

8. EARNINGS PER SHARE

Shares used to compute basic and diluted earnings per share from operations are as follows:

	Three Months Ended April 30,				Six Months Ended April 30,
	2012		2011		2012		2011

Net income available to common shares	$	9,735	$	7,946	$	17,384	$	12,750

Basic
Weighted average shares		55,751		54,374		55,408		54,253

Diluted
Weighted average shares, basic		55,751		54,374		55,408		54,253
Dilutive effect of options		902		636		746		700
Weighted average shares, diluted		56,653		55,010		56,154		54,953

Basic earnings per share	$	0.17	$	0.15	$	0.31	$	0.24
Diluted earnings per share	$	0.17	$	0.14	$	0.31	$	0.23

Weighted average anti-dilutive shares excluded from diluted EPS		1,618		3,417		2,105		3,211

9. FAIR VALUE MEASUREMENT

We utilize a three level hierarchy that defines the assumptions used to measure certain assets and liabilities at fair value.

Cash and cash equivalents, accounts receivable, the current portion of our investment in sales-type leases and notes receivable are not presented in the table below as their carrying value approximates fair value due to their short term nature. It is impracticable to estimate the fair value of the long-term portion of our investment in sales-type leases and notes receivable as it is comprised of many insignificant balances, customers with different credit profiles and various interest rates. The fair value of our Revolver as of April 30, 2012 and October 31, 2011 has been calculated based on market borrowing rates available as of April 30, 2012 and October 31, 2011, respectively, for debt with similar terms and maturities. The following table provides the fair value measurement information about the Company’s long-term debt.

	Carrying Value April 30, 2012		Fair Value April 30, 2012		Carrying Value October 31, 2011		Fair Value October 31, 2011		Fair Value Hierarchy

Revolver	$	21,446	$	21,564	$	37,446	$	37,679	Level 2

10. OPERATING SEGMENTS

The following provides financial information concerning our reportable segments of our operations:

	Three Months Ended April 30,						Six Months Ended April 30,
	2012			2011			2012			2011

Revenue:
Utility	$	24,990		$	19,172		$	44,606		$	36,533
Proprietary Table Games		11,954			10,546			25,629			21,772
Electronic Table Systems		6,866			11,797			15,130			19,928
Electronic Gaming Machines		22,244			18,368			36,742			25,465
	$	66,054		$	59,883		$	122,107		$	103,698
Gross profit (loss):
Utility	$	16,154		$	11,584		$	27,337		$	22,432
Proprietary Table Games		9,818			8,405			21,360			17,667
Electronic Table Systems		2,684			4,837			6,813			9,487
Electronic Gaming Machines		13,833			11,268			22,800			15,676
	$	42,489		$	36,094		$	78,310		$	65,262
Operating income (loss):
Utility	$	14,202		$	9,858		$	23,652		$	19,086
Proprietary Table Games		6,736			7,385			16,641			15,760
Electronic Table Systems		(838	)		1,719			(121	)		3,532
Electronic Gaming Machines		10,394			8,393			16,247			10,157
Unallocated Corporate		(15,734	)		(15,204	)		(30,545	)		(29,333	)
	$	14,760		$	12,151		$	25,874		$	19,202
Depreciation and amortization:
Utility	$	1,899		$	1,947		$	3,675		$	3,199
Proprietary Table Games		1,350			1,456			2,603			2,769
Electronic Table Systems		1,653			1,705			3,310			3,903
Electronic Gaming Machines		345			60			543			128
Unallocated Corporate		1,133			947			2,266			1,877
	$	6,380		$	6,115		$	12,397		$	11,876
Capital expenditures:
Utility	$	990		$	2,169		$	2,210		$	4,366
Proprietary Table Games		664			746			2,204			6,175
Electronic Table Systems		506			1,516			2,226			3,077
Electronic Gaming Machines		872			67			5,130			67
Unallocated Corporate		3,255			794			3,279			1,724
	$	6,287		$	5,292			15,049		$	15,409

REVENUE BY GEOGRAPHIC AREA

The following provides financial information concerning our revenues by geographic area:

	Three Months Ended April 30,								Six Months Ended April 30,
	2012				2011				2012				2011
	(Dollars in thousands)
Revenue:
United States	$	28,771	43.6	%	$	24,345	40.7	%	$	54,955	45.0	%	$	50,350	48.6	%
Canada		2,226	3.4	%		1,882	3.1	%		3,744	3.1	%		3,274	3.2	%
Other North America		1,125	1.7	%		1,592	2.7	%		2,178	1.8	%		2,360	2.3	%
Europe		2,440	3.7	%		2,236	3.7	%		4,027	3.3	%		3,642	3.5	%
Australia		25,293	38.3	%		24,563	41.0	%		43,987	36.0	%		35,514	34.2	%
Asia		6,016	9.1	%		4,822	8.1	%		12,665	10.4	%		7,776	7.5	%
Other		183	0.2	%		443	0.7	%		551	0.4	%		782	0.7	%
	$	66,054	100.0	%	$	59,883	100.0	%	$	122,107	100.0	%	$	103,698	100.0	%

11. COMMITMENTS AND CONTINGENCIES

Ongame Network Ltd. On March 5, 2012, through our wholly-owned subsidiary Shuffle Master International, Inc., we entered into a definitive agreement to acquire Ongame Network Ltd., a limited liability company incorporated and existing under the laws of Gibraltar (“Ongame”), from bwin.party services (Austria) GmbH (“bwin.party”). Ongame is one of the world’s largest business to business online poker providers.

The acquisition is subject to completion of certain conditions, including the continued material accuracy of the parties’ representations and warranties; the performance of and compliance with all covenants in the definitive agreement; and the receipt of required regulatory approvals. The closing of the transaction is expected to occur not more than nine months following execution of the definitive agreement (the “Closing”). As consideration for the acquisition of the shares of Ongame, and indirectly the acquisition of Ongame’s subsidiaries, at the Closing we will pay €19.5 million (approximately $25.8 million using the translation rate available as of April 30, 2012) in cash, subject to certain adjustments at Closing. We may also become obligated to additionally pay up to €10 million in cash within five years of Closing contingent upon the commencement of legalized, real-money online poker in the U.S. occurring, if at all, within five years of Closing. The €10 million (approximately $13.2 million using the translation rate available as of April 30, 2012) contingent payment decreases through the five-year period. The contingent payment will be €10 million if real-money online poker is legalized in the U.S. on or before 730 days following Closing, €7 million if legalized on or after 731 days following Closing and on or before 1,095 days following Closing, €5 million on or after 1,096 days following Closing and on or before 1,461 days following Closing, and €3 million on or after 1,462 days following Closing and on or before 1,826 days following Closing. We expect to fund the acquisition with cash on hand and availability on the Senior Secured Revolving Credit Facility.

The obligations of the signatories under the definitive agreement are guaranteed by each party’s ultimate parent entity to the benefit of the respective other party.

Employment agreements. We have entered into employment agreements with our corporate officers and certain other key employees with durations ranging from one to four years. Significant contract provisions include minimum annual base salaries, healthcare benefits, bonus compensation if performance measures are achieved and non-compete provisions. These contracts are primarily “at will” employment agreements, under which the employee or we may terminate employment. If we terminate any of these employees without cause, we are obligated to pay the employee severance benefits as specified in their individual employment agreement. As of April 30, 2012 and October 31, 2011, minimum aggregate severance benefits totaled $7.4 million and $6.6 million, respectively.

Legal proceedings. In the ordinary course of business, we are involved in various legal proceedings and other matters that are complex in nature and have outcomes that are difficult to predict. We record accruals for such contingencies to the extent that we conclude that it is probable that a loss will be incurred and the amount of loss can be reasonably estimated. We have not recorded any loss accruals for these contingencies other than as we have considered reasonable for the matters noted below. Our assessment of each matter may change based on future unexpected events. An unexpected adverse judgment in any pending litigation could cause a material impact on our business operations, intellectual property, results of operations or financial position. Unless otherwise expressly stated, we believe costs associated with litigation will not have a material impact on our financial position or liquidity, but may be material to the results of operations in any given period. We assume no obligation to update the status of pending litigation after the date of this Form 10-Q, except as may be required by applicable law, statute or regulation.

TableMAX – In April 2009, TableMAX IP Holdings, Inc. and TableMAX Gaming, Inc. filed a complaint (the “First Complaint”) against us in the United States District Court for the District of Nevada. This case is a patent infringement claim alleging that our Table Master® product infringes U.S. Patents 5,688,174, 6,921,337 and 7,201,661. The First Complaint sought injunctive relief and an unspecified amount of damages, including claims for attorneys’ fees, costs, increased damages and disbursements. In August 2009, TableMAX Holdings, Inc. and TableMAX Gaming, Inc. voluntarily dismissed the First Complaint. On the same date, TableMAX IP Holdings, Inc., TableMAX Gaming, Inc. and Vegas Amusement, Inc. the alleged owner of Patents 5,688,174, 6,921,337 and 7,201,661, (collectively “TableMAX”), filed a new complaint (the “New Complaint”) making allegations materially the same as the allegations in the First Complaint. In August 2009, TableMAX filed an amended complaint (the “Second Complaint”), which superseded and is materially the same as the New Complaint, except that the plaintiffs added a new claim that Table Master® infringes U.S. Patent 7,575,512, which was issued on August 18, 2009. In August 2009, the plaintiffs filed a Motion for Preliminary Injunction in the Second Complaint that sought to enjoin future sales of our Table Master® product. In October 2009, the Court denied the Motion for Preliminary Injunction without hearing oral argument and the Court also denied without prejudice various motions for summary judgment that we filed. During the discovery process, TableMAX made new allegations that certain of our Vegas Star® products infringe one of the patents in the Second Complaint. In January 2010, TableMAX filed a Second Amended Complaint (the "Third Complaint"), which has materially the same allegations as the Second Complaint, except that it alleges that our Vegas Star® product allegedly infringes all of the patents in suit. A document produced in the discovery process appears to limit TableMAX's allegations of infringement regarding our Vegas Star® product to only one of TableMAX's patents in suit.

The Court set the Markman hearing for December 2010. In November 2010, the Court granted our Motion to Stay. The stay was granted because of pending reexamination proceedings before the United States Patent and Trademark Office as to the four patents that are the subject of the lawsuit. The reexamination proceedings were initiated as a result of our request. We believe that the final results of the reexamination proceedings will be beneficial to us in future Court proceedings. It is possible that all four reexamination proceedings will conclude in fiscal 2012 and thus the stay may be lifted in fiscal 2012. At present, the case remains stayed. We believe that the claim is entirely without merit and we intend to continue to vigorously defend this matter.

Macau Rapid Baccarat ® Patent Issue – On or about June 3, 2009, at the G2E Asia Gaming Show, customs officials from Macau SAR seized a Shuffle Master, Inc. (“SMI”) Rapid Baccarat ® unit related to a claim by a Macau patent holder of our alleged patent infringement. On October 27, 2009, the governmental official in charge of the investigation elected to dismiss the investigation based on a finding that no patent infringement existed based upon the report of the Macau customs officials. In November 2009, the patent holder appealed this finding to the Macau Courts. On or about January 20, 2010, over our objection, the judge considering the patent holder’s appeal found that his appeal was timely filed.

On or about February 2010, we filed an appeal (the “First SMAL Appeal”) to this decision. On or about March 2010, the judge declined to forward the First SMAL Appeal to a higher Macau Court. We filed a further appeal (the “Second SMAL Appeal”) to have the higher Macau court hear the First SMAL Appeal. On June 2, 2010, the Judge denied the patent holder’s request to open a criminal proceeding and decided that the investigation should remain dismissed against SMAL and its directors. The patent holder has subsequently appealed the June 2, 2010, decision to a higher Macau court, which appeal has not yet been heard. In the event the patent holder’s appeal is successful, it is likely that legal proceedings will be commenced against SMAL and its directors in Macau relating to this patent, although, at this time, no such proceedings have been commenced. Such proceedings, if initiated, would be for patent infringement, which we understand is a criminal matter in Macau. The Company does not carry insurance with respect to this matter. We believe that the claim is without merit and we intend to continue to defend this matter vigorously.

On May 4, 2012, the patent holder along with a company apparently controlled by the patent holder (collectively the "patent holders") requested that the Macau Court enjoin us and certain other exhibitors from infringing the patent holders' patents during the G2E Asia Gaming Show held May 22 through May 24. On May 15, 2012, the Macau Court signed a written decision enjoining us and certain other exhibitors from infringing these patents, even though the court decision did not specifically identify which of our products at the G2E Asia Gaming Show would allegedly infringe such patents. On May 22, 2012, Macau Customs instructed the Company to cover our Rapid Table Games™ Multi Game product at the G2E Asia Gaming Show and we complied. On May 23, 2012, we received Court approval to post a bond of approximately $0.1 million in substitution of the injunction and to permit us to display the Rapid Table GamesTM Multi Game product. Notwithstanding that on May 23, 2012, we displayed the Rapid Table Games™ Multi Game product on the advice of our Macau counsel following the Macau Court allowing us to post a bond, we believe that Macau government officials are investigating the timing of lifting of the cover off the Rapid Table GamesTM Multi Game product and whether such action may give rise to any alleged criminal charges against SMAL or its officers. The patent holders are required to file civil action for patent infringement and to attempt to claim other alleged damages within ten days from the date of service of the injunction. As with the other claim, we believe that all of these claims are entirely without merit and we intend to continue to vigorously defend this matter.

Wright Matter – On November 7, 2009, Sam Wright was playing a Vegas Star ® craps machine at the Harrah’s Casino New Orleans. Mr. Wright played a game that ended in a losing result. After the game concluded, as a result of a malfunction, a false credit meter value of approximately $42.0 million appeared on the machine. On or about April 2010, we received notice that Mr. Wright had filed a patron dispute with the Louisiana State Police Gaming Division. In October 2010, the Louisiana State Police Gaming Division concluded in regard to the patron dispute that there was no violation of state law, rule or internal control. Mr. Wright was unsuccessful in the patron dispute.

In November 2010, Mr. Wright filed a Petition for Damages (the “Wright Complaint”) with the Civil District Court for the Parish of Orleans, State of Louisiana, naming the Company, Jazz Casino Company, LLC d/b/a Harrah’s New Orleans Casino and Harrah’s New Orleans Management Company (collectively, “Harrah’s) as defendants. The Petition claimed damages of approximately $43.0 million plus possible treble damages, attorneys’ fees and costs. The Company could have had possible indemnity obligations to Harrah’s if a judgment had been entered. In February 2011, all defendants answered the Petition and removed the case to the United States District Court for the Eastern District of Louisiana. On February 2012, the Company attended a Court ordered settlement conference, in which the Wright Complaint and the Declaratory Relief Complaint (discussed below) were settled between the parties without admission of liability by either the Company or Harrah’s. Effective May 8, 2012, the Wright Compliant and the Declaratory Relief Complaint were dismissed with prejudice.

Axis Surplus Insurance Company (“Axis”) was the Company’s insurance carrier with respect to the Wright Complaint. In November 2011, we filed a Complaint for Declaratory Judgment (the “Declaratory Relief Complaint”) in the United States District Court for the Eastern District of Louisiana against Axis seeking, pursuant to our policy (a) Axis to provide full policy coverage and defense; (b) Axis to pay all legal fees and expenses incurred by us in the defense of the Wright Complaint; and (c) Axis to make all reasonable efforts to protect us from risk of excess judgment. The Declaratory Relief Complaint was dismissed with prejudice as discussed above.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement for Purposes of “Safe Harbor Provisions” of the Private Securities Litigation Reform Act of 1995

This Form 10-Q contains forward-looking statements. We consider such statements to be made under the safe harbor created by the federal securities laws to which we are subject. In some cases, you can identify forward-looking statements by the following words: “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “objective,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing” or the negative of these terms or other comparable terminology intended to identify performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Examples of such forward looking statements include, without limitation, statements about or relating to the following:

Business strategies, including with respect to development of new or enhanced products, investment of capital to maximize returns and build our economic engine, and our focus on leasing structures for commercialization of certain products to increase returns and gross margins;

Expectations regarding the potential acquisition of Ongame Networks Ltd., (“Ongame”) including the expected timing of consummation of, potential benefits of and sources of cash to fund such acquisition;

Increasing our Proprietary Table Games content through development or acquisitions of new proprietary titles;

Expectations of increases in gross margins and revenues from leasing of certain products;

The growth opportunities and revenue potential from our i-Table®, i-Table Roulette™ and MD3™ Shuffler products;

The benefits of our products;

Continued volatility in sales revenue from our Utility segment;

Expected increases in leasing revenue in the Utility segment, driven by the MD3TM shuffler, with the majority of upgrade placements expected to be leases;

Expectations to begin revenue generation from Vegas StarTM Live Roulette;

Expectations that Electronic Gaming Machines revenues will continue to come from sales of EGMs in Australia;

Expected growth of additional international markets, including Asia and Latin America;

Expectations of Equinox™ placement in 2012 exceeding 2011 levels;

Cash and capital resources being sufficient to satisfy requirements for working capital, capital expenditures, debt service and other liquidity requirements of existing operations for at least the next 12 months;

Company expectations with respect to outstanding litigation;

Growing capital expenditures in proportion to revenue as a result of our leasing model extending into more capital-intensive products; and

Expectations with respect to foreign currency exchange rate fluctuation risk.

Although we currently believe that we have a reasonable basis for each forward-looking statement contained in this Form 10-Q, we caution you that these statements are based on a combination of facts and factors currently known by us, as well as our projections of the future, about which we cannot be certain. Forward-looking statements reflect and are subject to inherent known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied. Risk factors that could cause actual results to differ materially from those expressed or implied by our forward-looking statements include, but are not limited to, the following:

Failure to maintain our regulatory licenses or obtain new licenses where necessary;

Legislative and regulatory changes that impact us or our customers;

Non-compliance with the covenants in our senior secured credit agreement, including as a result of factors that are beyond our control;

Delays or inability to meet the closing conditions for the Ongame acquisition;

High volatility or extreme changes in foreign currency exchange rates;

Difficulties or delays in, or being prevented from, carrying out acquisitions and subsequent integration of acquired businesses;

Difficulties in maintaining and protecting our intellectual property rights;

Potential infringement of the intellectual property rights of third parties;

Adverse outcomes with respect to litigation regarding intellectual property, including our payment of damages, constraints on our business and operations and invalidation of our intellectual property;

Involvement in other legal proceedings, and adverse outcomes with respect to such proceedings which could have a materially adverse effect on our business or prospects;

Disruption or delays in our or our suppliers’ manufacturing processes that could prevent us from meeting demand for our products;

Revenue losses in any of our business segments due to technical difficulties or fraudulent activities experienced by end users;

Inability to obtain market acceptance of products currently in development;

Inability to maintain a competitive technological position with respect to our competitors and competitive products;

Lower than expected revenues from our transition in certain products to a lease-based commercialization model;

Decreased demand for our products, including as a result of developments with respect to competitive products;

Adverse economic conditions in the gaming industry, which is our sole industry of focus; and

Adverse developments with respect to economic, political, legal and other risks associated with our international sales and operations.

In addition, refer to the “Risk Factors” section in Part II, Item 1A of this Form 10-Q, as well as the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended October 31, 2011, as filed with the Securities and Exchange Commission on January 5, 2011, and as incorporated by reference in Part II, Item 1A of this 10-Q, for a discussion of other important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure that the forward-looking statements will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, these statements should not be regarded as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by each of these cautionary statements above.

The following discussion should be read in conjunction with “Item 8. Financial Statements and Supplementary Data” in the Form 10-K and the Condensed Consolidated Financial Statements and notes thereto included elsewhere in this Form 10-Q. All information presented herein is based on our fiscal calendar. Unless otherwise stated, references in this report to particular years or quarters refer to our fiscal years ended in October and the associated quarters of those fiscal years.

Overview

We are a leading global gaming supplier committed to making gaming more fun for players and more profitable for operators through product innovation, and superior quality and service. We operate in legalized gaming markets across the globe and provide state-of-the-art, value-add products in four distinct segments: Utility products, which include automatic card shufflers and roulette chip sorters; Proprietary Table Games (“PTG”), which include live table games, side bets and progressives as well as our newly introduced i-Gaming, which features online versions of our table games, social gaming and mobile applications; Electronic Table Systems (“ETS”), which include various e-Table game platforms; and Electronic Gaming Machines (“EGM”), which include video slot machines. Each segment's activities include the design, development, acquisition, manufacturing, marketing, distribution, installation and servicing of a distinct product line. Our products are manufactured at our headquarters and manufacturing facility in Las Vegas, Nevada, at our Australian headquarters in Milperra, New South Wales, Australia, as well as outsourced, for certain sub-assemblies in the United States, Europe and Asia.

See Note 1 to our Condensed Consolidated Financial Statements for a more detailed discussion of our four segments.

On March 5, 2012, through our wholly-owned subsidiary Shuffle Master International, Inc., we entered into a definitive agreement to acquire Ongame, a limited liability company incorporated and existing under the laws of Gibraltar, from bwin.party services (Austria) GmbH (“Seller”). Ongame is one of the world’s largest business to business online poker providers.

Strategy

We believe we enhance our customer and shareholder value through our execution of the following strategic priorities:

An unwavering commitment to create innovative solutions and services for casino operators and compelling gaming experiences for players through enhanced customer centricity.

Reinforce our relationships with our customers by providing enhanced efficiencies, security and profitability on the casino floor. We continue to work toward 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.

Seek long-term profitability and sustainability through our recurring revenue model. We plan to 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 2,500 patents, trademarks and copyrights 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 these core assets.

Capitalize on emerging markets and the worldwide proliferation of gaming. A large part of our success in fiscal 2011 was turning opportunities into achievements. As new markets continue to emerge across the globe and as existing gaming markets continue to evolve, we strive to make the most of every opportunity that arises.

Sound balance sheet management to fuel growth through:

continued investment in our recurring revenue model, global intellectual property and research and development (“R&D”). We believe this will promote growth on the Company’s top and bottom line without relying on the introduction of significant new markets;

continued examination of acquisitions. We are seeking opportunities that are accretive to earnings, have strong existing recurring revenues, and merit our efforts of integration; and

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 plan to continue our process improvement initiatives and uncover additional operational efficiencies.

Capitalize on opportunities created from existing online gaming markets and prepare ourselves for the potential legalization of Internet gambling in the United States. The gaming landscape is quickly evolving and we will strive to be a leading content-provider in this arena. We believe online gaming represents a significant opportunity for our future growth.

We are focused on our customers and on value-creation for our shareholders. We seek to maintain continuous improvement while keeping innovation at the core of our success. We believe that continued execution of our strategic plan is the best method to foster the growth of our business in fiscal 2012.

Sources of Revenue

We derive our revenue from the lease, license and sale of our products and by providing service to our leased and in some cases, previously sold units. Consistent with our strategy, we have a continuing emphasis on leasing or licensing our products. When we lease or license our products, we generally negotiate month-to-month fixed fee contracts, or to a lesser extent, enter into participation arrangements whereby casinos pay us a fee based on a percentage of net win. Product lease contracts typically include parts and service. When we sell our products, we offer casinos a choice between a cash sale or to a lesser extent, long-term financing. We also offer a majority of our products for sale with an optional parts and service contract.

Currently, Utility segment revenue is derived substantially from our automatic card shufflers. In addition to leasing shufflers, we also sell and service them. In the PTG segment, the majority of games placed are licensed to our customers on month-to-month license arrangements, which provides us with monthly royalty revenue. In the ETS segment, we derive revenue from leases, sales and service contracts. In the EGM segment, we derive revenue from selling the full EGM complement, as well as game conversion kits. Upon the acquisition of Ongame, we will begin consolidating their results of operations which will include revenues from licensing the use of Ongame’s business-to-business online poker platform.

The following points should be noted as they relate to each of our segments:

Utility

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 upgrade initiative. We expect the next revenue driver to be our new MD3™ shuffler. The MD3™ is our next generation upgrade for the legacy MD series shufflers. As the MD1 reaches its end of life where replacement parts will no longer be available, our strategy is to encourage our customers to upgrade the MD1 shufflers, both leased and previously sold, with the MD3™ shuffler. The majority of these placements are expected to be leases.

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 have been 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 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 year, we have seen an increase in the demand for our shufflers in Macau, particularly the MD3™.

Proprietary Table Games

Majority of our PTG segment revenue is derived 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 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.

We intend to increase our PTG content through development and acquisition of new proprietary titles. By increasing our footprint with new titles, we hope to increase our domestic market penetration and expand further into international markets.

We intend to seek enforcement against parties that infringe our intellectual properties for Internet gaming in legalized markets where legal systems and availability of cost-effective remedies are available to us.

Electronic Table Systems

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 have approved live table games. While this has caused some 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 Latin America. However, the new placements are not yet performing to the same revenue and profitability levels as the units that were removed.

Through development of new products and enhancements of our existing products we expect to generate revenue and growth for the ETS segment. New products include the following:

The new i-Table® and i-Table Roulette™ combine an electronic betting interface with a live table game and graphically-enhanced central display screens. We expect these products to provide us with growth opportunities in domestic and international markets if they achieve customer acceptance;

In Australia and Asia, we have begun generating revenue from placements of our new multi-game feature on Rapid Table Games®, which offers enhanced live statistics at the touch of a button and betting can be conducted across multiple games.

Electronic Gaming Machines

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 2011, as Equinox™ gained broader market acceptance. While we would not expect to see this record growth continue indefinitely, we expect Equinox™ placements in fiscal 2012 will continue above 2011 levels.

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.

We are pursuing opportunities for sales growth in additional jurisdictions in Australia. We also expect growth in additional international markets such as Asia and Latin America. Initial installations into Asia began during the third quarter 2011, of which a majority was Equinox™ and in the current year we have placed units in Mexico and Latin America.

Expenses

Our direct expenses primarily include cost of products sold, depreciation of leased assets, and amortization of product-related intangible assets, service, manufacturing overhead, shipping and installation. Indirect expenses include other costs directly identified with each segment, such as R&D, product approval costs, product-related litigation expenses, amortization of patents and other product-related intellectual property, sales commissions and other directly-allocable sales expenses. We continue to expend significant R&D efforts on the development of our newer generation shuffler products, such as the MD3™ and one2six® Plus, our i-Shoe® Auto card recognition products, as well as other table accessories, such as the i-Shoe® and the i-Score™ display. With our expansion into the e-Table markets, we continue to spend significant R&D dollars on developing and implementing new gaming mediums, such as the i-Table®, our newest e-Table that combines a variety of our products to create an exciting new table game experience. We are also spending increased R&D dollars on the new Equinox™ EGM cabinets and related game content. Upon the acquisition of Ongame, we will begin consolidating their results of operations, which will include cost of sales, selling, general and administrative expenses, as well as research and development.

The amounts classified as unallocated corporate expenses consist primarily of costs related to overall corporate management and support functions. These include costs related to executive management, accounting and finance, general sales support, legal and compliance costs, office expenses and other amounts for which allocation to specific segments is not practicable.

Gross Margin

The number and mix of products placed and the average lease or sales price are the most significant factors affecting our gross margins. Our continuing emphasis on leasing versus selling, the shift in product mix, timing of installations and related upfront installation charges, as well as changes in non-cash depreciation and amortization expenses attributable to our acquisitions, impact our margins.

In general, lease gross margin is greater than the sales gross margin for the same products. However, total gross profit from leasing is lower in a given reporting period than those of a sale due to the much higher price of a sale versus a lease. A number of factors impact gross margins, including the number and mix of products placed and the average lease or sales price of those products. For example, in our PTG segment, premium table games warrant a higher average lease price than a PTG add-on such as a felt side-bet or a progressive. For Utility products, when a new shuffler is introduced into the market, we use introductory lease pricing. After the introductory pricing period expires, the price generally increases to the monthly “list” lease price, which we believe will increase future revenues because most customers keep the products beyond the introductory pricing period. Accordingly, we anticipate that gross margins will increase under our lease model.

We occasionally record inventory adjustments related to obsolescence or declines in the net realizable value of some products. While those adjustments occur in the normal course of business, it can cause negative pressure on our margins. We also occasionally dispose of leased assets that are no longer in service and are no longer usable.

In addition to the lease versus sale strategy, we expect to see continual improvement in our gross margins through value engineering to reduce manufacturing costs. Our focus is currently on savings attributable to component parts, product redesign and lower cost manufacturing opportunities within each of our segments.

The following table presents our various revenues and expenses as a percentage of revenue:

CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended April 30,										Six Months Ended April 30,
	2012					2011					2012					2011
	(Dollars in thousands)
Revenue:
Utility	$	24,990		37.8	%	$	19,172		32.0	%	$	44,606		36.5	%	$	36,533		35.2	%
Proprietary Table Games		11,954		18.1	%		10,546		17.6	%		25,629		21.0	%		21,772		21.0	%
Electronic Table Systems		6,866		10.4	%		11,797		19.7	%		15,130		12.4	%		19,928		19.2	%
Electronic Gaming Machines		22,244		33.7	%		18,368		30.7	%		36,742		30.1	%		25,465		24.6	%

Total revenue		66,054		100.0	%		59,883		100.0	%		122,107		100.0	%		103,698		100.0	%
Cost of revenue		23,565		35.7	%		23,789		39.7	%		43,797		35.9	%		38,436		37.1	%

Gross profit		42,489		64.3	%		36,094		60.3	%		78,310		64.1	%		65,262		62.9	%
Selling, general and administrative		19,804		30.0	%		17,060		28.5	%		36,984		30.3	%		33,261		32.1	%
Research and development		7,925		12.0	%		6,883		11.5	%		15,452		12.7	%		12,799		12.3	%

Income from operations		14,760		22.3	%		12,151		20.3	%		25,874		21.1	%		19,202		18.5	%
Other income (expense):
Interest income		174		0.3	%		126		0.2	%		313		0.3	%		252		0.2	%
Interest expense		(378	)	(0.6	%)		(671	)	(1.1	%)		(855	)	(0.7	%)		(1,372	)	(1.3	%)
Other, net		(146	)	(0.2	%)		(1,118	)	(1.9	%)		29		0.0	%		(961	)	(0.9	%)
Total other income (expense)		(350	)	(0.5	%)		(1,663	)	(2.8	%)		(513	)	(0.4	%)		(2,081	)	(2.0	%)

Income from operations before tax		14,410		21.8	%		10,488		17.5	%		25,361		20.7	%		17,121		16.5	%
Income tax provision		4,675		7.1	%		2,542		4.2	%		7,977		6.5	%		4,371		4.2	%
Net income	$	9,735		14.7	%	$	7,946		13.3	%	$	17,384		14.2	%	$	12,750		12.3	%

The following table provides additional information regarding our revenue, gross profit and gross margin:

REVENUE AND GROSS MARGIN

	Three Months Ended April 30,						Percentage			Six Months Ended April 30,						Percentage
	2012			2011			Change			2012			2011			Change
	(Dollars in thousands)
Revenue:
Leases and royalties	$	26,947		$	24,264			11.1	%	$	52,900		$	47,840			10.6	%
Sales and service		39,107			35,619			9.8	%		69,207			55,858			23.9	%
Total	$	66,054		$	59,883			10.3	%	$	122,107		$	103,698			17.8	%

Cost of revenue:
Leases and royalties	$	9,427		$	8,354			12.8	%	$	18,378		$	15,536			18.3	%
Sales and service		14,138			15,435			(8.4	%)		25,419			22,900			11.0	%
Total	$	23,565		$	23,789			(0.9	%)	$	43,797		$	38,436			13.9	%

Gross profit:
Leases and royalties	$	17,520		$	15,910			10.1	%	$	34,522		$	32,304			6.9	%
Sales and service		24,969			20,184			23.7	%		43,788			32,958			32.9	%
Total	$	42,489		$	36,094			17.7	%	$	78,310		$	65,262			20.0	%

Gross margin:
Leases and royalties		65.0	%		65.6	%					65.3	%		67.5	%
Sales and service		63.8	%		56.7	%					63.3	%		59.0	%
Total		64.3	%		60.3	%					64.1	%		62.9	%

Three months ended April 30, 2012 compared to three months ended April 30, 2011

Revenue

Our revenue for the three months ended April 30, 2012 increased $6.2 million over the same prior year period, primarily due to the following:

Increase of $3.5 million in our sales and service revenue:

Increase in shuffler sales in Asia and to new casino openings in the United States;

Increase in our EGM segment driven by a substantial increase in sold units due to the continued popularity of our Equinox™ cabinet, the

introduction of our new Super Topbox for the Equinox™ cabinet, as well as our expansion into the Victoria, Australia market; and

Offset by decreased revenue in our ETS segment primarily driven by decreases in the number of seats sold.

Increase of $2.7 million in our leases and royalties revenue was primarily due to our strategic focus on leasing:

Increased PTG lease and royalty revenue due to a 27.2% increase in units on lease; and

Increased Utility lease revenue due to a 13.5% increase in shuffler units on lease, driven by MD3®, primarily in the United States and Asia.

Impact of foreign currency fluctuations:

Total revenue was positively impacted by approximately $0.6 million due to the exchange effect of a weakening U.S. dollar.

Gross margin

Our gross margin for the three months ended April 30, 2012 increased 400 basis points (“bps”) to 64.3% as compared to the same prior year period, reflecting the following:

Increased segment margin performance:

Utility was favorably impacted by increases in the number of shufflers sold and increased average sales price;

Increased margins in the PTG segment were driven primarily by an increase in the number of units on lease; and

EGM was favorably impacted by increases in the number of units sold and increased average sales prices.

Partially offset by ETS which was unfavorably impacted by reductions in the number of units sold and average sales prices; and

Impact of foreign currency fluctuations:

Total gross profit was positively impacted by approximately $0.3 due to the exchange effect of a weakening U.S. dollar.

Six months ended April 30, 2012 compared to six months ended April 30, 2011

Revenue

Our revenue for the six months ended April 30, 2012 increased $18.4 million over the same prior year period, primarily due to the following:

Increase of $13.3 million in our sales and service revenue:

Increase in our EGM segment driven by a substantial increase in sold units due to the continued popularity of our Equinox™ cabinet, the introduction of our new Super Topbox for the Equinox™ cabinet, as well as our expansion into the Victoria, Australia market;

Increase in shuffler sales in Asia and to new casino openings in the United States;

$2.3 million in settlement and license fees from online operators driven by our strategy to protect and license our intellectual property; and

Offset by decreased revenue in our ETS segment primarily driven by decreases in the number of seats sold.

Increase of $5.1 million in our leases and royalties revenue was primarily due to our strategic focus on leasing:

Increased Utility lease revenue due to a 13.5% increase in shuffler units on lease, primarily in the United States and Asia; and

Increased PTG lease and royalty revenue due to a 27.2% increase in units on lease.

Impact of foreign currency fluctuations:

Total revenue was positively impacted by approximately $1.6 million due to the exchange effect of a weakening U.S. dollar.

Gross margin

Our gross margin for the six months ended April 30, 2012 increased 120 bps to 64.1% as compared to the same prior year period, reflecting the following:

Increased segment margin performance:

Increased margins in the PTG segment were driven primarily by settlement and license fees of $2.3 million from online operators with little associated direct costs and an increase in the number of units on lease; and

EGM was favorably impacted by increases in the number of units sold and increased average sales prices.

Partially offset by ETS which was unfavorably impacted by reductions in the number of units sold and decrease in average sales prices.

Impact of foreign currency fluctuations:

Total gross profit was positively impacted by approximately $1.0 due to the exchange effect of a weakening U.S. dollar.

The following table provides additional information regarding our operating expenses:

OPERATING EXPENSES

	Three Months Ended April 30,						Percentage			Six Months Ended April 30,						Percentage
	2012			2011			Change			2012			2011			Change
	(Dollars in thousands)

Selling, general and administrative	$	19,804		$	17,060			16.1	%	$	36,984		$	33,261			11.2	%
Percentage of revenue		30.0	%		28.5	%					30.3	%		32.1	%

Research and development	$	7,925		$	6,883			15.1	%	$	15,452		$	12,799			20.7	%
Percentage of revenue		12.0	%		11.5	%					12.7	%		12.3	%

Total operating expenses	$	27,729		$	23,943			15.8	%	$	52,436		$	46,060			13.8	%
Percentage of revenue		42.0	%		40.0	%					42.9	%		44.4	%

Three months ended April 30, 2012 compared to three months ended April 30, 2011

Selling, general & administrative (“SG&A”) expenses:

SG&A expenses increased $2.7 million for the three months ended April 30, 2012, as compared to the same prior year period. This increase primarily reflects the following:

Ongame acquisition related expenses:

Ongame acquisition and due diligence expenses and related professional fees of approximately $1.5 million.

Compensation expense:

Increase of approximately $1.2 million in payroll and related expenses, partially driven by hiring of several executive level positions during fiscal 2011, including our Chief Executive Officer, our General Counsel and our Chief Strategy Officer, as well as sales and profit driven compensation expenses due to increased revenue during the three months ended April 30, 2012, as compared to the prior year period.

Research & development (“R&D”) expenses:

The following projects have been the focus of our R&D efforts during the three months ended April 30, 2012:

EGM:

R&D efforts were spent on developing additional new EGM titles for the Equinox™ cabinet and to support ongoing business growth and geographic expansion into Asia.

ETS:

Expenses primarily related to the development of updated ETS products including Table Master®, Rapid Table Games® and Vegas Star® as well as ongoing development of i-Table® and i-Table Roulette™.

Utility:

Expenses primarily related to development of next generation shufflers, as well as ongoing development of our existing Utility products.

PTG

Ongoing enhancements to the successful progressive offering to our table game titles including the development of our Operator Wide Area Progressive (“O-WAP”); and

Development of online platforms and versions of our table games for online, social gaming and mobile applications.

Six months ended April 30, 2012 compared to six months ended April 30, 2011

Selling, general & administrative (“SG&A”) expenses:

SG&A expenses increased $3.7 million for the six months ended April 30, 2012, as compared to the same prior year period. This increase primarily reflects the following:

Compensation expense

Increase of approximately $2.3 million in payroll and related expenses, partially driven by hiring of several executive level positions during fiscal 2011, including our Chief Executive Officer, our General Counsel and our Chief Strategy Officer, as well as sales and profit driven compensation expenses due to increased revenue during the three months ended April 30, 2012, as compared to the prior year period.

Ongame acquisition related expenses:

Ongame acquisition and due diligence expenses and related professional fees of approximately $1.5 million.

Research & development (“R&D”) expenses:

The following projects have been the focus of our R&D efforts during the six months ended April 30, 2012:

EGM:

R&D efforts were spent on developing additional new EGM titles for the Equinox™ cabinet and to support ongoing business growth and geographic expansion into Asia.

ETS:

Utility:

Expenses primarily related to development of next generation shufflers, as well as ongoing development of our existing Utility products.

PTG

Ongoing enhancements to the successful progressive offering to our table game titles including the development of our O-WAP; and

Development of online platforms and versions of our table games for online, social gaming and mobile applications.

The following table provides additional information regarding our depreciation and amortization expenses:

DEPRECIATION AND AMORTIZATION EXPENSES

	Three Months Ended April 30,				Percentage			Six Months Ended April 30,				Percentage
	2012		2011		Change			2012		2011		Change
	(Dollars in thousands)
Gross margin:
Depreciation	$	3,107	$	2,597		19.6	%	$	5,962	$	5,007		19.1	%
Amortization		1,482		1,722		(13.9	%)		2,871		3,349		(14.3	%)
Total		4,589		4,319		6.3	%		8,833		8,356		5.7	%

Operating expenses:
Depreciation		939		1,017		(7.7	%)		1,883		1,990		(5.4	%)
Amortization		852		779		9.4	%		1,681		1,530		9.9	%
Total		1,791		1,796		(0.3	%)		3,564		3,520		1.3	%

Total:
Depreciation		4,046		3,614		12.0	%		7,845		6,997		12.1	%
Amortization		2,334		2,501		(6.7	%)		4,552		4,879		(6.7	%)
Total	$	6,380	$	6,115		4.3	%	$	12,397	$	11,876		4.4	%

Depreciation expense is primarily comprised of depreciation associated with products leased and held for lease and to a lesser extent depreciation of property, plant and equipment. Amortization expense is primarily comprised of amortization associated with intellectual property and customer relationships.

Three months ended April 30, 2012 compared to three months ended April 30, 2011

Total depreciation and amortization included in gross margin increased 6.3% in the three months ended April 30, 2012 as compared to the same prior year period. Increased depreciation in gross margin is attributable to increases in leased assets. Decreased amortization in gross margin is due to reduced amortization of intangible assets in our Utility, ETS and EGM segments as the underlying intangible assets reached the end of their estimated useful lives.

Total depreciation and amortization included in operating expenses decreased 0.3% in the three months ended April 30, 2012 as compared to the same prior year period. Depreciation expenses decreased as various assets reached the end of their estimated useful lives. The increase in amortization expenses relates primarily to amortization of the intellectual property acquired under the purchase agreement with Newton Shuffler, LLC during prior year period.

Six months ended April 30, 2012 compared to six months ended April 30, 2011

Total depreciation and amortization included in gross margin increased 5.7% in the six months ended April 30, 2012 as compared to the same prior year period. Increased depreciation in gross margin is attributable to increases in leased assets. Decreased amortization in gross margin is due to reduced amortization of intangible assets in our Utility, ETS and EGM segments as the underlying intangible assets reached the end of their estimated useful lives.

Total depreciation and amortization included in operating expenses increased 1.3% in the six months ended April 30, 2012 as compared to the same prior year period. Depreciation expenses decreased as various assets reached the end of their estimated useful lives. The increase in amortization expenses relates primarily to amortization of the intellectual property acquired under the purchase agreement with Newton Shuffler, LLC during prior year period.

INCOME TAXES

Three months ended April 30, 2012 compared to three months ended April 30, 2011

The effective income tax rate from continuing operations for the three months ended April 30, 2012 increased to 32.4% during the three months ended April 30, 2012, as compared to 24.2% in the prior year period. This increase primarily reflects the following:

· Nondeductible expenses recorded in the current period for transaction costs related to the Ongame acquisition and related expenses;

· Beneficial U.S. R&D tax credit in the prior year period which was not reinstated in the current year period; and

· Changes in valuation allowances.

Six months ended April 30, 2012 compared to six months ended April 30, 2011

The effective income tax rate from continuing operations for the six months ended April 30, 2012 increased to 31.5% during the six months ended April 30, 2012, as compared to 25.5% in the prior year period. This increase primarily reflects the following:

· Nondeductible expenses recorded in the current period for transaction costs related to the Ongame acquisition and related expenses;

· Beneficial U.S. R&D tax credit in the prior year period which was not reinstated in the current year period; and

· Changes in valuation allowances.

SEGMENT OPERATING RESULTS

Utility Segment Operating Results

Three months ended April 30, 2012 compared to three months ended April 30, 2011

	Three Months Ended April 30,						Increase			Percentage
	2012			2011			(Decrease)			Change
	(In thousands, except for units and per unit amounts)
Utility Segment Revenue:
Lease	$	11,579		$	10,275		$	1,304			12.7	%
Sales - Shuffler		10,257			5,252			5,005			95.3
Sales - Chipper		292			360			(68	)		(18.9	)
Service		1,758			1,684			74			4.4
Other		1,104			1,601			(497	)		(31.0	)
Total sales and service		13,411			8,897			4,514			50.7
Total Utility segment revenue	$	24,990		$	19,172		$	5,818			30.3	%

Utility segment gross profit	$	16,154		$	11,584		$	4,570			39.5	%
Utility segment gross margin		64.6	%		60.4	%

Utility segment operating income	$	14,202		$	9,858		$	4,344			44.1	%
Utility segment operating margin		56.8	%		51.4	%


Shuffler unit information:
Lease units, end of period(1)		8,261			7,278			983			13.5	%
Average monthly lease price	$	467		$	471		$	(4	)		(0.8	%)

Sold units during the period		653			355			298			83.9	%
Average sales price	$	15,708		$	14,794		$	914			6.2	%

Chipper unit information:
Lease units, end of period(1)		195			202			(7	)		(3.5	%)

Sold units during the period		17			18			(1	)		(5.6	%)
Average sales price	$	17,176		$	20,000		$	(2,824	)		(14.1	%)

(1) Certain unit information as of April 30, 2011 has been amended to reflect an immaterial adjustment to the beginning units as of October 31, 2008. No changes were made to revenue.

Our Utility segment revenue the three months ended April 30, 2012 increased $5.8 million as compared to the same prior year period, primarily due to the following:

· A 95.3% increase in shuffler sales revenue:

o	An increase of 83.9% in the number of units sold, driven primarily by increased shuffler sales in Asia and shuffler sales in the United States primarily to new casinos opening and replacement of previously sold shufflers; and

o	An increase of 6.2% in shuffler average sales price driven by changes in the mix of shuffler models sold.

· A 12.7% increase in lease revenue:

o	An increase in the number of MD2™ units on lease in Asia and MD3™ units on lease in the United States; and

o	Placements of the newly introduced MD3™ shuffler, which accounted for the majority of our new lease placements during the quarter. The MD3™ lease base has grown to over 500 units as of the end of the quarter.

Utility gross profit increased 39.5% year over year and utility gross margin increased 420 bps to 64.6% as compared to the same prior year period primarily related to the following:

· The overall increase in total revenues as noted above;

· Offset by depreciation on the newly-installed leased shufflers that was proportionally higher than the increase in lease revenue.

Utility operating income increased 44.1% for the three months ended April 30, 2012 as compared to the same prior year period, and operating margin increased 540 bps to 56.8%. These changes primarily related to the changes described in gross profit and gross margin above.

Six months ended April 30, 2012 compared to six months ended April 30, 2011

	Six Months Ended April 30,						Increase			Percentage
	2012			2011			(Decrease)			Change
	(In thousands, except for units and per unit amounts)
Utility Segment Revenue:
Lease	$	22,872		$	20,281		$	2,591			12.8	%
Sales - Shuffler		15,450			9,692			5,758			59.4
Sales - Chipper		460			473			(13	)		(2.7	)
Service		3,466			3,312			154			4.6
Other		2,358			2,775			(417	)		(15.0	)
Total sales and service		21,734			16,252			5,482			33.7
Total Utility segment revenue	$	44,606		$	36,533		$	8,073			22.1	%

Utility segment gross profit	$	27,337		$	22,432		$	4,905			21.9	%
Utility segment gross margin		61.3	%		61.4	%

Utility segment operating income	$	23,652		$	19,086		$	4,566			23.9	%
Utility segment operating margin		53.0	%		52.2	%


Shuffler unit information:
Lease units, end of period(1)		8,261			7,278			983			13.5	%
Average monthly lease price	$	461		$	464		$	(3	)		(0.6	%)

Sold units during the period		1,002			619			383			61.9	%
Average sales price	$	15,419		$	15,658		$	(239	)		(1.5	%)

Chipper unit information:
Lease units, end of period(1)		195			202			(7	)		(3.5	%)

Sold units during the period		24			23			1			4.3	%
Average sales price	$	19,167		$	20,565		$	(1,398	)		(6.8	%)

(1) Certain unit information as of April 30, 2011 has been amended to reflect an immaterial adjustment to the beginning units as of October 31, 2008. No changes were made to revenue.

Our Utility segment revenue for the six months ended April 30, 2012 increased $8.1 million as compared to the same prior year period, primarily due to the following:

· A 59.4% increase in shuffler sales revenue:

o	An increase of 61.9% in the number of units sold, driven primarily by increased shuffler sales in Asia and shuffler sales in the United States primarily to new casinos opening and replacement of previously sold shufflers.

· A 12.8% increase in lease revenue:

o	An increase in the number of MD2™ units on lease in Asia and MD3™ units on lease in the United States; and

o	Placements of the newly introduced MD3™ shuffler, which accounted for the majority of our new lease placements during the year to date period. The MD3™ lease base has grown to over 500 units as of the end of the quarter.

Utility gross profit increased 21.9% year over year and utility gross margin remained relatively consistent as compared to the same prior year period primarily related to the following:

· The overall increase in total revenues as noted above;

· Offset by depreciation on the newly-installed leased shufflers that was proportionally higher than the increase in lease revenue.

Utility operating income increased 23.9% for the six months ended April 30, 2012 as compared to the same prior year period, and operating margin remained relatively consistent. These changes primarily related to the changes described in gross profit and gross margin above.

Proprietary Table Games Segment Operating Results

Three months ended April 30, 2012 compared to three months ended April 30, 2011

	Three Months Ended April 30,						Increase			Percentage
	2012			2011			(Decrease)			Change
	(In thousands, except for units and per unit amounts)

PTG segment revenue:
Royalties and leases	$	11,732		$	10,370		$	1,362			13.1	%
Sales		139			73			66			90.4
Service		36			30			6			20.0
Other		47			73			(26	)		(35.6	)
Total sales and service revenue		222			176			46			26.1
Total PTG segment revenue	$	11,954		$	10,546		$	1,408			13.4	%

PTG segment gross profit	$	9,818		$	8,405		$	1,413			16.8	%
PTG segment gross margin		82.1	%		79.7	%

PTG segment operating income	$	6,736		$	7,385		$	(649	)		(8.8	%)
PTG segment operating margin		56.3	%		70.0	%


PTG unit information (1):
Premium units, end of period		2,667			2,391			276			11.5	%
Side bet units, end of period		2,488			1,905			583			30.6	%
Progressive units, end of period		1,108			724			384			53.0	%
Add-on units, end of period		319			154			165			107.1	%
Total revenue generating lease base		6,582			5,174			1,408			27.2	%

Average monthly lease/license price	$	594		$	668		$	(74	)		(11.1	%)

Sold during period		2			6			(4	)		(66.7	%)
Average sales price	$	35,500		$	12,167		$	23,333			191.8	%

(1) Certain unit information as of April 30, 2011 has been amended to reflect an immaterial adjustment to the beginning units as of October 31, 2008. No changes were made to revenue.

Total PTG segment revenue for the three months ended April 30, 2012 increased $1.4 million as compared to the same prior year period, primarily due to the following:

·	A 13.1% increase in royalties and leases revenue:

o	Increased placements of premium table games in the United States, primarily Ultimate Texas Hold ‘Em® and Mississippi Stud®;

o	Increased placements of progressive units in the United States, primarily Three Card Poker Progressive, Fortune Pai Gow Poker® Progressive and Ultimate Texas Hold ‘Em® Progressive;

o	Increased placements of side bets in the United States, primarily Fortune Pai Gow Poker® and the acquisition of the Fire Bet® side bet during the prior quarter; and

o	Offset by an 11.1% decrease in average monthly lease/license price due to the change in mix of table game units on lease.

·	A 90.4% increase in PTG sales revenue:

o	Driven primarily by $0.07 million settlement and license fees from online operators for prior use of our intellectual property; and

o	Sales of table games remained relatively flat year over year and the average sales price increased due to the mix of table game units sold.

PTG gross profit increased 16.8% year over year. PTG gross margin increased by 240 bps to 82.1% as compared to the same prior year period. The increase in gross profit and gross margin primarily related to the following:

·	The overall increase in total revenues.

PTG operating income decreased 8.8% year over year and operating margin decreased 1,370 bps to 56.3% as compared to the same prior year period. The decrease in operating income and operating margin primarily related to the following:

·	An increase in R&D costs associated with the development of games and platforms for online, social gaming, and mobile devices by SHFL InteractiveSM; and

·	Offset by the increase in gross margin and gross profit referred to above.

Six months ended April 30, 2012 compared to six months ended April 30, 2011

	Six Months Ended April 30,						Increase			Percentage
	2012			2011			(Decrease)			Change
	(In thousands, except for units and per unit amounts)

PTG segment revenue:
Royalties and leases	$	23,055		$	20,661		$	2,394			11.6	%
Sales		2,389			894			1,495			167.2
Service		65			57			8			14.0
Other		120			160			(40	)		(25.0	)
Total sales and service revenue		2,574			1,111			1,463			131.7
Total PTG segment revenue	$	25,629		$	21,772		$	3,857			17.7	%

PTG segment gross profit	$	21,360		$	17,667		$	3,693			20.9	%
PTG segment gross margin		83.3	%		81.1	%

PTG segment operating income	$	16,641		$	15,760		$	881			5.6	%
PTG segment operating margin		64.9	%		72.4	%


PTG unit information (1):
Premium units, end of period		2,667			2,391			276			11.5	%
Side bet units, end of period		2,488			1,905			583			30.6	%
Progressive units, end of period		1,108			724			384			53.0	%
Add-on units, end of period		319			154			165			107.1	%
Total revenue generating lease base		6,582			5,174			1,408			27.2	%

Average monthly lease/license price	$	584		$	666		$	(82	)		(12.3	%)

Sold during period		2			19			(17	)		(89.5	%)
Average sales price	$	35,500		$	47,053		$	(11,553	)		(24.6	%)

(1) Certain unit information as of April 30, 2011 has been amended to reflect an immaterial adjustment to the beginning units as of October 31, 2008. No changes were made to revenue.

Total PTG segment revenue for the six months ended April 30, 2012 increased $3.9 million as compared to the same prior year period, primarily due to the following:

·	A 11.6% increase in royalties and leases revenue:

o	Increased placements of premium table games in the United States, primarily Ultimate Texas Hold ‘Em® and Mississippi Stud®;

o	Increased placements of progressive units in the United States, primarily Three Card Poker Progressive, Fortune Pai Gow Poker® Progressive and Ultimate Texas Hold ‘Em® Progressive; and

o	Increased placements of side bets in the United States, primarily Fortune Pai Gow Poker® and the acquisition of the Fire Bet® side bet during the period; and

o	Offset by a 12.3% decrease in average monthly lease/license price due to the change in mix of table game units on lease.

·	A 167.2% increase in PTG sales revenue:

o	Driven by $2.3 million settlement and license fees from online operators in line with our strategy to protect and license our intellectual property; and

Offset by an 89.5% decrease in sold units, driven primarily by our strategic focus on leasing versus sales. The prior year period included sales of premium table games, primarily Three Card Poker and Let it Ride Bonus® lifetime licenses related to a new casino opening in Las Vegas. Average sale price declined due to the change in mix of table game units sold.

PTG gross profit increased 20.9% year over year. PTG gross margin increased by 220 bps to 83.3% as compared to the same prior year period. The increase in gross profit and gross margin primarily related to the following:

·	The overall increase in total revenues; and

·	The settlement and license fees from online operators described above partially offset by the decrease in the sale of table game lifetime licenses.

PTG operating income increased 5.6% year over year, although the operating margin decreased 750 bps to 64.9% as compared to the same prior year period. The increase in operating income primarily related to the following:

·	The increase in gross margin and gross profit referred to above.

The decrease in operating margin is primarily related to the following:

·	An increase in R&D costs associated with the development of games and platforms for online, social gaming, and mobile devices by SHFL InteractiveSM; and

·	Offset by the increase in gross margin and gross profit referred to above.

Electronic Table Systems Segment Operating Results

Three months ended April 30, 2012 compared to three months ended April 30, 2011

	Three Months Ended April 30,						Increase			Percentage
	2012			2011			(Decrease)			Change
	(In thousands, except for units and per unit/seat amounts)
ETS segment revenue:
Royalties and leases	$	3,512		$	3,514		$	(2	)		(0.1	%)
Sales		1,368			6,846			(5,478	)		(80.0	%)
Service		152			145			7			4.8	%
Other		1,834			1,292			542			42.0	%
Total sales and service revenue		3,354			8,283			(4,929	)		(59.5	%)
Total ETS segment revenue	$	6,866		$	11,797		$	(4,931	)		(41.8	%)

ETS segment gross profit	$	2,684		$	4,837		$	(2,153	)		(44.5	%)
ETS segment gross margin		39.1	%		41.0	%

ETS segment operating income	$	(838	)	$	1,719		$	(2,557	)		(148.7	%)
ETS segment operating margin		(12.2	%)		14.6	%

ETS unit information:

Rapid Table Games®, Table Master® and Vegas Star®:
Lease seats, end of period (1)		2,339			2,360			(21	)		(0.9	%)
Average monthly lease price	$	488		$	444		$	44			9.9	%

Sold during the period		82			307			(225	)		(73.3	%)
Average sales price	$	16,683		$	22,300		$	(5,617	)		(25.2	%)

i-Table®:
Lease units, end of period (1)		54			36			18			50.0	%

(1) Certain unit information as of April 30, 2011 has been amended to reflect an immaterial adjustment to the beginning units as of October 31, 2008. i-Table® seats are reported separately as units rather than seats to conform to the current presentation. No changes were made to revenue.

Total ETS segment revenue for the three months ended April 30, 2012 decreased $4.9 million as compared to the same prior year period, primarily due to the following:

·	An 80.0% decrease in sales revenue:

o	Decrease of 97.8% in Rapid Table Games® seats sold. The prior year included sales to large casino customers in Australia and Asia;

o	A 73.3% decrease in the number of Vegas Star® seats sold. Sales were primarily in Australia and the prior year sales were to large casino customers;

o	Decrease of 25.0% in the number of Table Master® seats sold in the United States; and

o	Additionally decreased by a 25.2% reduction in average sales price driven by discounts on units sold in Latin America and a decrease of sales in Australia, which carry a higher average sales price.

·	Impact of foreign currency fluctuations:

o	Total revenue was positively impacted by approximately $0.1 million due to the exchange effect of a weakening U.S. dollar.

·	Offset by an increase of 42.0% in other revenue, driven by increased sales of peripherals and conversion kits.

ETS gross profit decreased 44.5% year over year. ETS gross margin decreased 190 bps to 39.1% as compared to the same prior year period. These decreases are due to the following:

·	The decrease in sales revenue as noted above;

·	The decrease in average sales price as noted above; and

·	Offset by increased sales of peripherals and conversion kits at higher margins.

ETS operating income decreased 148.7% for the three months ended April 30, 2012 as compared to the same prior year period. ETS operating margin decreased 2,680 bps for the three months ended April 30, 2012 as compared to the same prior year period. These decreases in both operating income and operating margin primarily related to the following:

·	The decreases in gross profit and gross margin as noted above; and

·	An increase in R&D costs associated with the development of ETS products as described in the research and development expense section above. The ETS segment is in an investment phase as described in the research and development expense section above.

Six months ended April 30, 2012 compared to six months ended April 30, 2011

	Six Months Ended April 30,						Increase			Percentage
	2012			2011			(Decrease)			Change
	(In thousands, except for units and per unit/seat amounts)
ETS segment revenue:
Royalties and leases	$	6,768		$	6,708		$	60			0.9	%
Sales		5,751			10,771			(5,020	)		(46.6	%)
Service		301			280			21			7.5	%
Other		2,310			2,169			141			6.5	%
Total sales and service revenue		8,362			13,220			(4,858	)		(36.7	%)
Total ETS segment revenue	$	15,130		$	19,928		$	(4,798	)		(24.1	%)

ETS segment gross profit	$	6,813		$	9,487		$	(2,674	)		(28.2	%)
ETS segment gross margin		45.0	%		47.6	%

ETS segment operating income	$	(121	)	$	3,532		$	(3,653	)		(103.4	%)
ETS segment operating margin		(0.8	%)		17.7	%

ETS unit information:

Rapid Table Games®, Table Master® and Vegas Star®:
Lease seats, end of period (1)		2,339			2,360			(21	)		(0.9	%)
Average monthly lease price	$	470		$	466		$	4			0.9	%

Sold during the period		294			480			(186	)		(38.8	%)
Average sales price	$	19,561		$	22,440		$	(2,879	)		(12.8	%)

i-Table®:
Lease units, end of period (1)		54			36			18			50.0	%

Total ETS segment revenue for the six months ended April 30, 2012 decreased $4.8 million as compared to the same prior year period, primarily due to the following:

·	A 46.6% decrease in sales revenue:

o	A 63.9% decrease in the number of Vegas Star® seats sold. The prior year included sales to large casino customers primarily in Australia;

o	Decrease of 72.7% in the number of Table Master® seats sold as the prior year included significant sales to individual regional casinos in the United States;

o	A 12.8% reduction in average sales price driven by discounts on refurbished units sold in Asia and discounts on units sold in Latin America and a decrease of sales in Australia, which carry a higher average sales price; and

o	Offset by an increase of 39.7% in Rapid Table Games® seats sold in Australia, totaling approximately $3.1 million.

·	Impact of foreign currency fluctuations:

o	Total revenue was positively impacted by approximately $0.4 million due to the exchange effect of a weakening U.S. dollar.

·	Offset by an increase of 6.5% in other revenue, driven by increased sales of peripherals and conversion kits.

ETS gross profit decreased 28.2% year over year. ETS gross margin decreased 260 bps to 45.0% as compared to the same prior year period. These decreases are due to the following:

·	The decrease in sales revenue as noted above;

·	The decrease in average sales price as noted above; and

·	Offset by increased sales of peripherals and conversion kits at higher margins.

ETS operating income decreased 103.4% for the six months ended April 30, 2012 as compared to the same prior year period. ETS operating margin decreased 1,850 bps for the six months ended April 30, 2012 as compared to the same prior year period. These decreases in both operating income and operating margin primarily related to the following:

·	The decreases in gross profit and gross margin as noted above; and

·	An increase in R&D costs associated with the development of ETS products as described in the research and development expense section above. The ETS segment is in an investment phase as described in the research and development expense section above.

Electronic Gaming Machines Segment Operating Results

Three months ended April 30, 2012 compared to three months ended April 30, 2011

	Three Months Ended April 30,						Increase		Percentage
	2012			2011			(Decrease)		Change
	(In thousands, except for units/seats and per unit/seat amounts)

EGM segment revenue:
Lease revenue	$	124		$	103		$	21		20.4	%
Sales		20,728			17,158			3,570		20.8
Service		27			22			5		22.7
Other		1,365			1,085			280		25.8
Total sales and service revenue		22,120			18,265			3,855		21.1
Total EGM segment revenue	$	22,244		$	18,368		$	3,876		21.1	%

EGM segment gross profit	$	13,833		$	11,268		$	2,565		22.8	%
EGM segment gross margin		62.2	%		61.3	%

EGM segment operating income	$	10,394		$	8,393		$	2,001		23.8	%
EGM segment operating margin		46.7	%		45.7	%

EGM unit information:
Lease units, end of period		351			17			334		1,964.7	%

Sold during period		1,044			969			75		7.7	%
Average sales price	$	19,854		$	17,707		$	2,147		12.1	%

Total EGM segment revenue for the three months ended April 30, 2012 increased $3.9 million as compared to the same prior year period, primarily due to the following:

·	A 20.8% increase in sales revenue:

o	Driven by a 7.7% increase in units sold;

o	The increase in units sold is the result of the popularity of our new Equinox™ cabinet, the introduction of our new Super Topbox for the Equinox™ cabinet, as well as our expansion into the Victoria, Australia market in the current year; and

o	A 12.1% increase in average sales price reflecting higher sales prices for Equinox™ units.

·	Impact of foreign exchange fluctuations:

o	Total revenue was positively impacted by approximately $0.6 million due to the exchange effect of a weakening U.S. dollar.

·	An increase of 25.8% in other revenue, driven by an increase in sales of conversion kits and other parts and peripherals.

·	We are starting to generate revenue from machines on lease and from participation arrangements in Mexico and Latin America.

EGM gross profit increased 22.8% year over year, and EGM gross margin increased 90 bps to 62.2%. The increase in gross profit and gross margin primarily related to the following:

·	The increase in EGM sales revenues as noted above, driven primarily by the increase in units sold and the increase in average sales price;

·	Increased sales of conversion kits and other parts and peripherals at higher margins; and

·	Offset by import duties and freight expenses to place machines on lease in Mexico and Latin America

EGM operating income increased 23.8% for the three months ended April 30, 2012 as compared to the same prior year period. EGM operating margin also increased 100 bps for the three months ended April 30, 2012 as compared to the same prior year period. The increases in operating income and operating margin primarily related to the following:

·	The increases in total EGM revenue and gross profit as noted above.

Six months ended April 30, 2012 compared to six months ended April 30, 2011

	Six Months Ended April 30,						Increase		Percentage
	2012			2011			(Decrease)		Change
	(In thousands, except for units/seats and per unit/seat amounts)

EGM segment revenue:
Lease revenue	$	205		$	189		$	16		8.5	%
Sales		33,910			23,294			10,616		45.6
Service		32			32			-		-
Other		2,595			1,950			645		33.1
Total sales and service revenue		36,537			25,276			11,261		44.6
Total EGM segment revenue	$	36,742		$	25,465		$	11,277		44.3	%

EGM segment gross profit	$	22,800		$	15,676		$	7,124		45.4	%
EGM segment gross margin		62.1	%		61.6	%

EGM segment operating income	$	16,247		$	10,157		$	6,090		60.0	%
EGM segment operating margin		44.2	%		39.9	%

EGM unit information:
Lease units, end of period		351			17			334		1,964.7	%

Sold during period		1,705			1,292			413		32.0	%
Average sales price	$	19,889		$	18,029		$	1,860		10.3	%

Total EGM segment revenue for the six months ended April 30, 2012 increased $11.3 million as compared to the same prior year period, primarily due to the following:

·	A 45.6% increase in sales revenue:

o	Driven by a 32.0% increase in units sold;

o	The increase in units sold is the result of the popularity of our new Equinox™ cabinet, the introduction of our new Super Topbox for the Equinox™ cabinet, as well as our expansion into the Victoria, Australia market in the current year and to a lesser extent increased placements in Asia; and

o	A 10.3% increase in average sales price reflecting higher sales prices for Equinox™ units.

·	Impact of foreign exchange fluctuations:

o	Total revenue was positively impacted by approximately $1.2 million due to the exchange effect of a weakening U.S. dollar.

·	An increase of 33.1% in other revenue, driven by an increase in sales of conversion kits and other parts and peripherals.

·	We are starting to generate revenue from machines on lease and from participation arrangements in Mexico and Latin America.

EGM gross profit increased 45.4% year over year, and EGM gross margin increased 50 bps to 62.1%. The increase in gross profit and gross margin primarily related to the following:

·	The increase in EGM sales revenues as noted above, driven primarily by the increase in units sold and the increase in average sales price;

·	Increased sales of conversion kits and other parts and peripherals at higher margins; and

·	Offset by import duties and freight expenses to place several machines on lease in Mexico and Latin America

EGM operating income increased 60.0% for the six months ended April 30, 2012 as compared to the same prior year period. EGM operating margin also increased 430 bps for the six months ended April 30, 2012 as compared to the same prior year period. The increases in operating income and operating margin primarily related to the following:

·	The increases in total EGM revenue and gross profit as noted above.

LIQUIDITY AND CAPITAL RESOURCES

Our primary historical source of liquidity and capital resources has been cash on hand, cash from operations and various forms of debt. We use cash to fund growth in our operating assets, including inventory and products leased and held for lease and to fund new products through both research and development and strategic acquisitions of businesses and intellectual property. Based on past performance and current expectations, we believe these resources will satisfy our needs for working capital, capital expenditures, debt service, and other liquidity requirements associated with our existing operations for the next 12 months.

Our Senior Secured Revolving Credit Facility contains three financial maintenance covenants: a Total Leverage Ratio, Senior Leverage Ratio and an Interest Expense Coverage Ratio. Under the facility, we are required to maintain a Total Leverage Ratio, as defined therein, of not more than 3.75 to 1.0. Our Total Leverage Ratio as of April 30, 2012 was 0.28 to 1.0. Furthermore, we are required to maintain a Senior Leverage Ratio, as defined therein, of not more than 3.0 to 1.0 until October 31, 2013 and not more than 2.75 to 1.00 after October 31, 2013. Our Senior Leverage Ratio as of April 30, 2012 was 0.26 to 1.0. We are also required to maintain an Interest Coverage Ratio, as defined therein, in excess of 3.0 to 1.0 at the end of any fiscal quarter. Our Interest Coverage Ratio as of April 30, 2012 was 50.19 to 1.0.

Cash and cash equivalents at our foreign subsidiaries were $18.3 million as of April 30, 2012 and $17.5 million as of October 31, 2011. We constantly evaluate our cash position in each territory and look for ways to efficiently deploy capital to markets where it is most needed.

The closing of the Ongame acquisition is expected to occur not more than nine months following execution of the definitive agreement (the “Closing”). As consideration for the acquisition of Ongame and its subsidiaries, and if the closing conditions for the acquisition are met or waived, we are obligated to pay €19.5 million in cash, subject to certain adjustments, at closing. We may also become obligated to pay up to €10 million in additional cash within five years of closing contingent upon the commencement of legalized, real-money online poker in the United States. occurring, if at all, within five years of closing as described in Note 11 to our Condensed Consolidated Financial Statements included in this Form 10-Q. We expect to fund the acquisition with cash on hand and availability on the Senior Secured Revolving Credit Facility.

Working capital. The following summarizes our cash, cash equivalents and working capital:

	April 30, 2012		October 31, 2011		Increase (Decrease)		Percentage Change
	(In thousands, except ratios)

Cash and cash equivalents	$	22,964	$	22,189	$	775		3.5	%
Working capital	$	75,820	$	67,120	$	8,700		13.0	%
Current ratio	3.1 : 1		2.8 : 1

CASH FLOWS SUMMARY

	Six Months Ended April 30,						Increase		Percentage
	2012			2011			(Decrease)		Change
	(In thousands)

Net cash provided by operating activities	$	20,604		$	16,510		$	4,094		24.8	%
Net cash used in investing activities		(19,974	)		(18,468	)		1,506		8.2	%
Net cash provided by (used in) financing activities		(695	)		8,861			9,556		107.8	%
Effects of exchange rates		840			92			748		813.0	%
Net change in cash and cash equivalents	$	775		$	6,995

Capital Expenditures. Significant items included in cash flows related to capital expenditures are as follows:

	Six Months Ended April 30,						Increase			Percentage
	2012			2011			(Decrease)			Change
	(In thousands)

Payments for products leased and held for lease	$	(6,706	)	$	(7,263	)	$	(557	)		(7.7	%)
Purchases of property and equipment		(4,240	)		(2,001	)		2,239			111.9	%
Purchases of intangible assets		(4,103	)		(6,145	)		(2,042	)		(33.2	%)
Total capital expenditures	$	(15,049	)	$	(15,409	)

Operating

Cash flows provided by operating activities increased $4.1 million for the six months ended April 30, 2012 compared to the same prior year period, primarily due to following:

·	Strong operating performance led to an increase in net income of $4.6 million and the difference in non-cash items year over year provided an increase of additional $3.0 million;

A decrease in cash used for inventory of $1.4 million. We experienced reduction in our inventory balance compared to the prior year period as a result of a formal emphasis on inventory management to reduce manufacturing cost and strong revenue performance. As a result, inventory turns increased from 2.4 times as of April 30, 2011 to 3.3 times as of April 30, 2012;

·	Offset by a decrease of $5.7 million in prepaid income taxes.

Investing

Cash used in investing activities increased $1.5 million for the six months ended April 30, 2012 compared to the same prior year period, primarily due to following:

·	An increase of $2.2 million in cash used to purchase land for corporate facilities in Las Vegas, Nevada; and

·	A decrease of $2.8 million in proceeds from sale of leased assets.

Offset by following:

·	Purchase of intangible assets during the six months ended April 30, 2012 decreased by $2.0 million. Current year purchases related primarily to the acquisition of licenses to be used in our EGM segment; and

·	Acquisition of intellectual property and games which were recorded as a business acquisition for accounting purposes were $5.5 million during the six months ended April 30, 2012 compared with the acquisition of Newton Shuffler, LLC for $6.5 million in the prior year period.

Financing

Cash flows used in financing activities increased $9.6 million for the six months ended April 30, 2012 compared to the same prior year period, primarily due to following:

·	Cash used for debt payments on our Revolver, net of draws, was $16.0 million as compared to a net draw of $6.5 million during the six months ended April 30, 2011; and

·	Offset by increased proceeds from issuance of common stock of $12.5 million, due to an increased weighted average exercise price of options exercised and an increase in the number of options exercised in the current period compared to the prior year period.

Indebtedness (See Note 4 of our Notes to Condensed Consolidated Financial Statements)

$200.0 million senior secured revolving credit facility. On October 29, 2010, we entered into a senior secured credit agreement (the “Senior Secured Revolving Credit Facility”) with Wells Fargo Securities, LLC and Banc of America Securities LLC, as joint lead arrangers and joint lead bookrunners, Bank of America, N.A. as syndication agent and Union Bank, N.A. as documentation agent. The Senior Secured Revolving Credit Facility provides for senior secured credit facilities in an aggregate principal amount of $200.0 million consisting of a 5-year revolving credit facility (the “Revolver”) in an aggregate principal amount of $200.0 million with a sub-facility for letters of credit of $25.0 million, a sub-facility for multicurrency borrowings in Euros, Australian dollars and Canadian dollars of $25.0 million, and a sub-facility for swing line loans of $20.0 million, each on customary terms and conditions. The Senior Secured Revolving Credit Facility includes an option to increase the Revolver to $300.0 million, which would require syndication approval.

· the Federal Funds Rate plus .50%;

· the prime commercial lending rate of the Administrative Agent, as defined; and

· the one month LIBOR rate for such day plus 2.00%.

CAPITAL RESOURCES

Excluding any significant acquisitions of businesses, we believe our existing cash, investments, debt financing and projected cash flow from future operations will be sufficient to fund our operations, long-term obligations, capital expenditures, and new product development for at least the next 12 months. Projected cash flows from operations are based on our estimates of revenue and expenses and the related timing of cash receipts and disbursements. If actual performance differs from estimated performance, projected cash flows could be positively or negatively impacted.

DEBT, OTHER LONG-TERM LIABILITIES AND CONTRACTUAL OBLIGATIONS

Our contractual obligations have not changed materially from the amounts disclosed in our Form 10-K as of October 31, 2011.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have material off-balance sheet arrangements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We prepare our Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States. Our critical accounting policies are discussed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations; Critical Accounting Policies and Estimates” in our Form 10-K for the year ended October 31, 2011.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks, which arise during the normal course of business from changes in interest rates and foreign exchange rates. A discussion of our primary market risks is presented below.

Interest rate risk. As of April 30, 2012, we had approximately $21.4 million of variable rate debt. Assuming a 1% change in the average interest rate as of April 30, 2012, our annual interest cost would change by approximately $0.2 million.

Foreign currency risk. We are exposed to foreign currency exchange rate risk inherent in our leases and sales commitments, anticipated leases and sales, anticipated purchases and assets, liabilities and debt denominated in currencies other than the U.S. dollar. We transact business in numerous countries around the world using numerous currencies, of which the most significant to our operations for the three and six months ended April 30, 2012 and 2011, were the Australian dollar and the Euro. We settle inter-company trade balances, which results in the recognition of foreign currency fluctuations. We expect that a significant portion of the volume of our business will continue to be denominated in foreign currencies. As such, we expect our cash flows and earnings to continue to be exposed to the risks that may arise from fluctuations in foreign currency exchange rates.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time period specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15(b) promulgated under the Exchange Act, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the design and operating effectiveness as of April 30, 2012, of our disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Exchange Act. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of April 30, 2012.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the three and six months ended April 30, 2012, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

ITEM 1. LEGAL PROCEEDINGS

For information on Legal Proceedings and significant developments in any of the cases disclosed in our Form 10-K for the year ended October 31, 2011, see Note 11 to our Condensed Consolidated Financial Statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q.

For a complete description of the facts and circumstances surrounding material litigation to which we are a party, see our Form 10-K for the year ended October 31, 2011.

ITEM 1A. RISK FACTORS

Except as set forth below, a complete description of certain factors that may affect our future results and risk factors is set forth in our Form 10-K under Part I, Item 1A. The text of such risk factors, as updated with the disclosure herein, is incorporated herein by reference. For the three and six months ended April 30, 2012, there were no material changes to our risk factors except as set forth below in this Part II, Item 1A.

Completion of our acquisition of Ongame Network Ltd. is subject to many conditions and, if these conditions are not satisfied or waived, such acquisition will not be completed. Failure to complete the acquisition could have material and adverse effects on our business and the trading price of shares of our common stock.

The completion of our potential acquisition, referred to as the Acquisition, of Ongame Network Ltd ("Ongame"), pursuant to the terms of the Share Sale and Transfer Agreement, dated as of March 5, 2012 (the "Agreement"), and between us and bwin.party services (Austria) GMBH (the "Seller"), is subject to many conditions which must be satisfied or waived in order to complete such Acquisition. These conditions include the continued material accuracy of the parties’ representations and warranties; the performance of, and compliance with, all covenants in the Agreement; the execution and delivery of ancillary documents; obtaining the various third party and governmental approvals and consents required by the Agreement; and the absence of the occurrence of any events that constitute a material adverse change affecting Ongame. The Agreement will expire unless the completion of the Acquisition has occurred within nine months of execution of the Agreement. Either we or the Seller may terminate the Agreement at any time prior to the closing upon the other party’s uncured material breach of any covenant under the Agreement. Additionally, we may terminate the Agreement at any time prior to the closing upon a material adverse change affecting Ongame or if the concerns of any applicable gaming regulatory authority over our relationship with Seller, Ongame or any individuals associated with Ongame cannot be addressed in a manner that permits us from consummating the Acquisition and continuing the operations of Ongame without jeopardizing any of our or Ongame’s gaming licenses or regulatory approvals.

If the Acquisition is not completed on a timely basis, or at all, our ongoing business may be adversely affected. Additionally, in the event the Acquisition is not completed, we will be subject to a number of risks including the potential decline in the market price of our common stock.

If our acquisition of Ongame Network Ltd. is completed, we may be unable to successfully integrate Ongame’s businesses with ours on a timely basis or at all.

If the Acquisition is completed, we will be required to devote significant management attention and resources to integrating the business practices and operations of Ongame with ours. Potential difficulties we may encounter as part of the integration process include the following:

·	delays in the integration of management teams, strategies, operations, products and services;

·	diversion of the attention of each company's management as a result of the Acquisition;

·	differences in business backgrounds, corporate cultures and management philosophies that may delay successful integration;

·	the ability to retain key employees necessary to effectively manage or otherwise operate Ongame;

·	the ability to create and enforce uniform standards, controls, procedures, policies and information systems, including difficulty integrating systems of internal controls over financial reporting and other financial and administrative functions;

·	complexities associated with managing Ongame, including the challenge of integrating complex systems, technology, networks and other assets of Ongame into those of ours in a seamless manner that minimizes any adverse impact on customers, contactors, employees and other constituencies;

·	Ongame may have potential unknown liabilities that could require us to expend significant amounts of capital or otherwise harm our overall business;

·	addressing issues raised by additional regulatory burdens associated with the business of Ongame, including with respect to domestic and international internet gaming and other gaming regulations, both with respect to the operations of Ongame and with respect to our business overall;

·	unforeseen increased expenses or delays associated with the Acquisition, including one-time cash costs to integrate Ongame beyond current estimates; and

·	the disruption of, or the loss of momentum in, our or Ongame’s ongoing businesses,

any of which could adversely affect each company's ability to maintain relationships with customers, contractors, employees and other constituencies or our and Ongame’s ability to achieve any benefits of the Acquisition or could reduce our earnings or otherwise adversely affect our business and financial results following the completion of the Acquisition.

We will expend an amount of our cash resources and incur additional indebtedness under our senior secured credit facility to pay the cash consideration for the Acquisition and related fees and expenses, which could adversely affect our resources available for operations.

We expect to finance the cash consideration of the Acquisition through a combination of existing cash balances and our Senior Secured Credit Facility described in Note 4 to our Condensed Consolidated Financial Statements. The cost of acquiring Ongame pursuant to the Agreement (including the consideration payable to the Seller for the Acquisition, as well as fees, costs and expenses associated with the negotiation and consummation of the Acquisition and the integration of Ongame with our operations) represents a portion of our cash resources and a portion of the amount of funds we have available to us under the Senior Secured Credit Facility. Use of these resources for the acquisition of Ongame could have an adverse impact on our cash available to fund operations or for use for other purposes.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

	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 29, 2012		-	$	-		-	$	21,077
March 1 through March 31, 2012		-		-		-		21,077
April 1 through April 30, 2012		-		-		-		21,077
Total		-	$	-		-

(1) In September 2006, our board of directors authorized a stock buyback program for up to $30.0 million of the Company’s shares; as of April 30, 2012, $21.1 million remained outstanding under our board authorization. We cancel shares that we repurchase. Although we generally prioritize bank debt reduction over share repurchases we may consider share repurchases when there are anomalies in the share value created by, but not limited to, market conditions.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Item 5.02(e). On March 15, 2012, the Board of Directors of Shuffle Master, Inc. approved the following annual base salaries and bonus targets, effective February 25, 2012, for the named executive officers of the Company as follows:

·	Michael Gavin Isaacs, Chief Executive Officer: $0.5 million annual base salary and 100% target bonus;

·	David B. Lopez, Executive Vice President and Chief Operating Officer: $0.4 million annual base salary and 60% target bonus;

·	Linster W. Fox, Executive Vice President, Chief Financial Officer and Secretary: $0.3 million annual base salary and 60% target bonus;

·	Louis J. Castle, Chief Strategy Officer: $0.3 million annual base salary and 60% target bonus;

·	Roger Snow, Executive Vice President: $0.3 million annual base salary and 60% target bonus; and

·	Kathryn S. Lever, Executive Vice President and General Counsel: $0.3 million annual base salary and 60% target bonus.

ITEM 6. EXHIBITS

3.1	Articles of Incorporation of Shuffle Master, Inc. as amended July 15, 1992 (Incorporated by reference to exhibit 3.2 in our Annual Report on Form 10-K for the year ended October 31, 1995).
3.2	Articles of Amendment to Articles of Incorporation of Shuffle Master, Inc., effective January 14, 2005 (Incorporated by reference to exhibit 3.2 to our Annual Report on Form 10-K, filed January 13, 2005).
3.3	Articles of Correction of Articles of Amendment of Articles of Incorporation of Shuffle Master, Inc., effective March 15, 2005 (Incorporated by reference to exhibit 3.1 to our Current Report on Form 8-K, filed March 18, 2005).
3.4	Amended and Restated Bylaws of Shuffle Master, Inc., effective April 4, 2011 (Incorporated by reference to exhibit 3.4 to our Current Report on Form 8-K, filed April 8, 2011).
4.1	Registration Rights Agreement dated May 13, 2004, by and between Casinos Austria AG on the one hand and Shuffle Master, Inc. on the other hand (Incorporated by reference to exhibit 10.2 in our Quarterly Report on Form 10-Q for the quarter ended April 30, 2004).
10.1	Share Sale and Transfer Agreement, dated as of March 5, 2012, by and between bwin.party services (Austria) GMBH and Shuffle Master International, Inc.

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*
101.INS	XBRL Instance**
101.SCH	XBRL Taxonomy Extension Schema**
101.CAL	XBRL Taxonomy Extension Calculation**
101.DEF	XBRL Taxonomy Extension Definition**
101.LAB	XBRL Taxonomy Extension Labels**
101.PRE	XBRL Taxonomy Extension Presentation**

* Exhibits 32.1 and 32.2 are furnished to accompany this report on Form 10-Q but shall not be deemed filed for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise and shall not be deemed incorporated by reference into any registration statements filed under the Securities Act of 1933.

** XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

SIGNATURES

Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	SHUFFLE MASTER, INC.
	(Registrant)

	Date: June 4, 2012

	/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)