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Howard Stutz

Gaming Earnings: Shuffle Master Files Report for End of Year

28 February 2006

Shuffle Master Gaming, after a several-month delay, filed its year-end report Monday with the Securities and Exchange Commission, saying two adjustments that forced the postponement were immaterial to the casino equipment provider's overall results.

In a statement, Las Vegas-based Shuffle Master said two transactions associated with CARD, a European gaming equipment subsidiary purchased in May 2004, had minimal impact on the company's overall 2005 revenue of $112.9 million and income of $29.1 for the year that ended Oct. 31.

Shuffle Master auditors were trying to determine whether revenue from the transactions should be reported in the fourth quarter of 2005 or the first quarter of 2006.

The two transactions totaled $728,000 in revenue, less than 1 percent of full year fiscal revenue and resulted in an adjustment to the overall net income of $357,000.

"The company, under the direction of the audit committee of the company's board of directors, undertook an extensive review of a significant number of other transactions to determine whether any other adjustments to the company's financial results were required," Shuffle Master said in a statement.

Shuffle Master said the filing of the 10-K puts the company in compliance with the Nasdaq National Market, which had threatened to delist Shuffle Master earlier this month because the year-end report hadn't been filed.

The company has requested a hearing with the Nasdaq listing qualifications panel to review the matter.

Wall Street reacted positively to the news Monday. Banc of America raised its rating on the company to "buy." Shuffle Master shares traded on the Nasdaq closed at $26.36, up $1.26 or 5.02 percent. More than 1.7 million shares were traded, almost triple the average daily volume.

Deutsche Bank gaming analyst Marc Falcone said getting the 10-K filing matter behind Shuffle Master helps the company concentrate on growth potential.

Earlier this month, Shuffle Master completed a $108 million purchase of Stargames, an Australian slot machine and gaming equipment manufacturer. The purchase will will provide Shuffle Master greater opportunities in Asia's growing gaming markets.

"We believe Shuffle Master can continue to grow earnings per share at 25 percent to 30 percent," Falcone said in a note to investors.

"Further, Shuffle Master's geographic reach has never been greater, which we believe is a key component of growth," the Deutsche Bank analyst added.

Falcone said the company is in position to place its automated card shuffling devices and other table game products onto the planned 4,600 new gaming tables that are expected to open in Macau, China over the next three years.

In addition, new products, such as chip sorter for roulette tables and an automated multiple-player table game, could be approved for use in North American gaming markets throughout this year.

"We continue to like Shuffle Master's longer-term outlook and remain comfortable with the company's business model and revenue mix," Falcone said.