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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark one)

Commission File No. (0-20820)

SHUFFLE MASTER, INC.

(Exact name of registrant as specified in our charter)

Securities registered pursuant to Section 12 (b) of the Act:  None

Securities registered pursuant to Section 12 (g) of the Act:

Common Stock, par value $.01 per share

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        

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.            

Indicate by check mark whether the Registrant is accelerated filer (as defined in Exchange Act Rule 12b-2).      X 

As of December 31, 2004, 23,334,609 shares of Common Stock of the registrant were outstanding. The aggregate market value of Common Stock beneficially owned by non-affiliates on that date was $1,076,978,000 based upon the last reported sale price of the Common Stock at that date by The NASDAQ National Market.

DOCUMENTS INCORPORATED BY REFERENCE

Parts I, II and III of this Annual Report on Form 10-K incorporate by reference information from the Registrant’s Proxy Statement for its Annual Meeting of Shareholders to be held on March 15, 2005 (Fiscal 2004 Proxy Statement).

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SHUFFLE MASTER, INC.

ANNUAL REPORT OF FORM 10-K FOR THE YEAR ENDED OCTOBER 31, 2004

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PART I

FORWARD LOOKING STATEMENTS

There are statements herein which are forward-looking statements that are based on management’s beliefs, as well as on assumptions made by and information available to management. We consider such statements to be made under the safe harbor created by the federal securities laws to which we are subject, and, other than as required by law, we assume no obligation to update or supplement such statements.

These statements can be identified by the fact that they do not relate strictly to historical or current facts, and are based on management’s current beliefs and expectations about future events, as well as on assumptions made by and information available to management. These forward-looking statements include statements that reflect management’s beliefs, plans, objectives, goals, expectations, anticipations, and intentions with respect to our financial condition, results of operations, future performance and business, including statements relating to our business strategy and our current and future development plans. When used in this report, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “project,” “might,” “may,” “could,” “will” and similar expressions or the negative thereof, as they relate to us or our management, identify forward-looking statements.

Forward-looking statements reflect and are subject to risks and uncertainties that could cause actual results to differ materially from expectations. Factors that could cause actual results to differ materially from expectations include, but are not limited to, the following:

Additional information on these and other risk factors that could potentially affect our financial results may be found in other documents filed by us with the Securities and Exchange Commission, including our quarterly reports on Form 10-Q and current reports on Form 8-K.

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ITEM 1.  BUSINESS

OUR IDENTITY

We are a gaming supply company that specializes in providing our casino and other gaming customers with automatic card shufflers and other Utility Products to improve their profitability, productivity and security, as well as Entertainment Products, including proprietary poker, blackjack, baccarat, and pai gow poker based table games. As of October 31, 2004, we had an installed unit base of approximately 15,289 shufflers and approximately 3,233 table games. Installed base is the sum of the product units under lease or license agreements and inception-to-date sold units. We believe that installed units is an important gauge of segment performance because it measures historical market placements of leased and sold units and it provides insights into potential markets for service and next generation products. Some sold units may no longer be in use by our casino customers or may have been replaced by other models. Accordingly, we are unable to determine precisely the number of units currently in use.

We are a Minnesota corporation that was formed in 1983. We conducted our initial public offering and became a Nasdaq-listed public company in 1992. Our corporate offices are located at 1106 Palms Airport Drive, Las Vegas, Nevada 89119 and our telephone number is 702-897-7150.

We maintain an Internet website at www.shufflemaster.com and we make available on the website, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after filing such material electronically with the Securities and Exchange Commission. We also provide a variety of other information including all of our press releases. We have included our website address in this filing only as a textual reference. The information contained on our website is not incorporated by reference into this annual report or on Form 10-K.

Effective May 1, 2004, we acquired a 100% ownership in CARD Casinos Austria Research & Development GmbH & Co KG and its wholly-owned subsidiaries (“CARD”). CARD, which is now a subsidiary of our Shuffle Master International subsidiary, provides us with a headquarters and direct sales force for international business centrally located in Vienna with a satellite office in New Zealand. CARD develops, manufactures and supplies innovative casino products including the one2six^™, a shuffler that accommodates up to six decks of cards and can be used for almost every casino card game. In addition, CARD’s products under development include the Easy Chipper, a next-generation chip sorting device.

Effective February 24, 2004, we acquired certain assets of BET Technology, Inc. (“BTI”). The acquired assets and operations include the Fortune Pai Gow Poker^®, Royal Match 21^™ and Casino War^® table games and related patents, trademarks and other intellectual property, as well as the “BET Technology, Inc.” name. The acquired installed base of Fortune Pai Gow Poker, Royal Match 21 and Casino War table games was 1,090 units. Additional information regarding our acquisitions is included in Note 2 to our consolidated financial statements.

In December 2003, our board of directors approved and we committed to a plan to divest of our slot products operations and assets, based on our determination that this product line was no longer a strategic fit with our refocused core business strategy of providing products and services for the table game area of casinos. As of January 31, 2004, our slot products divestiture was substantially complete. Additional information regarding our discontinued operations is included in Note 3 to our consolidated financial statements.

We group our product offerings into two business segments, summarized as follows:

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The table below presents our product lines and the percentage of total revenue from continuing operations contributed by each product line in the fiscal years ended October 31:

For additional information about our segments, including segment revenue, operating income and assets, see “Item 6. Selected Financial Data,” “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8. Financial Statements and Supplementary Data” included elsewhere in this Annual Report.

OUR STRATEGY

We are proud of the products that we have developed and market and are pleased with our success as we continue our growth and expansion. Our product strategies, in no particular order, for the future are:

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OUR UTILITY PRODUCTS SEGMENT

Since our founding, we have developed and marketed products that increase the productivity, security and operating profits of the table game operations of our casino and other customers. Our automatic card shufflers were the first such product. Within the past three years, we have added the Bloodhound software product (described below), we expect to soon add additional modules to our Intelligent Table System (described below), now under development, and we have added our chip sorting and tracking devices to this product segment. We believe that our casino and other customers are seeking to increase the operating returns of their table game operations as they have already done in their slot operations. By introducing a combination of technologies designed to automate functions and processes and to gather more accurate and comprehensive data on players for financial and marketing purposes, our Utility Products aid casinos and other operators in improving their table game operations.

Our Shuffler Products.  We currently market a complete range of shufflers, including both batch and continuous shufflers. Single deck shufflers are generally used on proprietary games such as our own Let It Ride and Three Card Poker table games, as well as other table games such as Caribbean Stud Poker^®, pai gow poker and blackjack. Multi-deck shufflers, which include continuous and batch versions, are most commonly used in multi-deck blackjack and mini-baccarat table games. Additionally, we offer a single deck/double deck shuffler, the Deck Mate^®, for use on live stakes poker tables, a previously unpenetrated market for our shuffler products, and blackjack tables.

Our shufflers offer several benefits to our customers, including enhanced security and increased productivity. The opportunity for card manipulation by dealers is significantly reduced, resulting in increased security. By allowing cards to be shuffled continuously or in frequent batches, our shufflers reduce or eliminate card counting and shuffle tracking. Because our shufflers shuffle one or more decks while a game is being played, down-time related to dealer shuffling is also significantly reduced, with the potential for a corresponding increase in playing time and win for the casino.

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Foremost among our shuffler products are the following:

Our Other Utility Products.  We have acquired or are developing technology to enable casinos and others to track and analyze play on their table games. This technology combines computer software and hardware, RFID and the optical card reading features of our next generation of shufflers.

Our other Utility Products are the following:

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Customers and Marketing.  We market our Utility Products to legal casinos and other gaming establishments around the world with our domestic sales force of 10 account executives, one commissioned agent and one distributor and with our international sales force of 4 account executives at CARD and several international distributors. Our products and the locations in which we may sell are subject to the licensing and product approval requirements of various national, state, provincial, or tribal jurisdictional agencies that regulate gaming around the world. (See additional discussion under “Gaming Regulation.”) We both sell and lease our Utility Products. When we lease 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 or a longer-term sales-type lease, depending on the needs of each customer.

Historically, we marketed our shufflers in the table game areas of the casino. With the commercialization of the Deck Mate shuffler, we have extended the market for shufflers into poker rooms in casinos and single deck or double deck blackjack tables. As a result, we now market a full line of shufflers to accommodate virtually all of our customer’s shuffler needs.

Competition.  We compete with other gaming and entertainment products, including slot games, poker, roulette, craps, sportsbook, keno, public domain table games such as blackjack, and other proprietary table games for space on the casino customer’s floor to earn our product revenue. Some of the larger companies that manufacture and/or sell numerous of these products are International Game Technology (“IGT”), Alliance Gaming Corporation, WMS Industries, Inc., and Aristocrat Leisure Limited. In addition, several companies have developed and are marketing shufflers and are likely working to develop and obtain regulatory approvals of additional shuffler products. We compete with companies like VendingData Corporation, a U.S. company that markets batch and continuous versions of its multi-deck shuffler, the Random Ejection Shuffler^™ and more recently their single deck shuffler, the Poker One^™. These companies typically compete on the basis of price and shuffling speed. We compete on these bases as well as on the bases of offering a complete line of shufflers, product reliability, a superior international service network, the strength of our intellectual property, and the breadth of our sales, regulatory, and distribution channels. These beliefs notwithstanding, we cannot provide assurances that a competitive product will not gain substantial placements or cause price erosion of our shufflers in the future.

With respect to our efforts to develop the player tracking and data gathering technologies of our Intelligent Table System, we believe that several existing gaming companies, such as Progressive Gaming International Corporation (“Progressive Gaming”) and Alliance Gaming, are working to develop similar competitive technologies.

With respect to our recently-introduced Easy Chipper product, several companies also manufacture and sell competitive chipper products. We believe the most successful of these products is the Chipper Champ, sold by TCS John Huxley.

Product Supply.  We obtain most of the parts for our Utility Products from outside suppliers, including both off-the-shelf items as well as components manufactured to our specifications. We also manufacture a small number of

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parts in-house that are used both for product assembly and for servicing existing products. We generally perform final assembly ourselves and then warehouse and ship our products from our facilities in Las Vegas. Warehousing, quality control, final assembly and shipping are conducted primarily at our Las Vegas facility, although small inventories are maintained and repairs are performed by our field service organization. Our one2six and Easy Chipper products are manufactured by a subcontract manufacturer, located in Vienna, Austria, who also inventories and ships these products. We believe that our sources of supply for components and raw materials are adequate and that alternative sources of materials are available.

Research and Development.  We employ a staff of electrical, mechanical and software engineers to improve and upgrade our existing shufflers, to develop new shufflers, to develop technology and products related to our Bloodhound software and the Intelligent Table System and to explore other potential table-related products. We perform the majority of our domestic research and development ourselves. We also use a foreign, third party developer for certain of our international product offerings. In addition to working to improve existing products and to develop the next generation of shufflers, we also are devoting a significant portion of our research and development efforts to integrating our shufflers with our other Utility Products.

OUR ENTERTAINMENT PRODUCTS SEGMENT

Our Entertainment Products segment includes our proprietary table games, our Table Master multi-player video platform and our side-bet system. The products in this segment include proprietary table game content that is delivered on different live-dealt and electronic platforms.

Our Current Table Games.  We currently are or intend to soon market the following proprietary table games to casinos:

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Customers and Marketing.  We market our Entertainment Products to the same customers to whom we market our Utility Products. We first began offering table games in 1993 to increase the demand for our shuffler products and we still routinely install shufflers and proprietary table games together. We design our proprietary table games to have broad appeal to players who enjoy a more casual and social card game or who are new to or intimidated by traditional table games. Our various table games offer casinos and players a wide variety of betting propositions and risk and reward trade-offs.

With the introduction of our recently-developed Table Master product, which does not utilize a live dealer, we are able to market our proprietary table game content in unpenetrated jurisdictions that only allow slot games, such as racinos (race tracks that also offer slot games). Additionally, we will be able to market our dealer-less Table Master games to casinos who want more cost-effective table products or who want to offer lower stakes table games.

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We typically market our table games directly to casinos by licensing the games for a monthly fixed fee. In fiscal 2003, we began selling lifetime licenses of our table games such as Let It Ride and more recently, Three Card Poker. We also market Let It Ride, Three Card Poker and side-bet systems in international jurisdictions.

Competition. We compete with other gaming and entertainment products, including slot games, poker, roulette, craps, sportsbook, keno, public domain table games such as blackjack, and other proprietary table games for space on the casino customer’s floor to earn our product revenue. Some of the larger companies that manufacture and/or sell numerous of these products are IGT, WMS Industries, Inc., Alliance Gaming, and Aristocrat Leisure Limited. For example, the market for table games is characterized by numerous competitors who develop and license proprietary table games. Some of our competitors’ widely known proprietary table game titles include Progressive Gaming’s Caribbean Stud^®, Galaxy Gaming’s Lucky Ladies^™ and Masque Publishing’s Spanish 21^®, among others.

Competition in the table game market is typically on the basis of price, brand recognition, and the strength of underlying intellectual property. Smaller developers and vendors are more able to participate in developing and marketing table games, compared to other gaming products, because of the lower cost and complexity associated with the development of these products. We compete on these bases, as well as on the strength of our extensive sales, service and distribution channels. We have been able to increase our placements of table games not only because of the growth of the proprietary table game market, but also by displacing other table game products. In the future, table game competitors could market table games that might displace our products.

There are also numerous other companies that manufacture and/or sell multi-player games, which are similar to our Table Master product. These companies include Stargames Corporation Pty Limited and Vegas Amusements, Inc.

Product Supply. We obtain most of the parts for our Entertainment Products from outside suppliers, including table game felts, signs, and accessories, as well as components for our side bet systems. We also manufacture a small number of parts in-house that are used both for product assembly and for servicing existing products. We generally perform final assembly ourselves and then warehouse and ship our products from our facilities in Las Vegas. Warehousing, quality control, final assembly and shipping are conducted primarily at our Las Vegas facility, although small inventories are maintained and repairs are performed by our field service organization. Our Table Master units are manufactured by a subcontract manufacturer who also inventories and ships this product. We believe that our sources of supply for components and raw materials are adequate and that alternative sources of materials are available.

Research and Development. Our primary Entertainment Product research and development efforts have involved re-engineering and improving the Table Master multi-player platform. This development work involved re-engineering the Table Master cabinet, betting stations and electronics as well as improving video quality and game interface options. We are also developing software to allow our proprietary table games, including Three Card Poker and Let It Ride, to operate on this platform. Additionally, we developed several new live proprietary table games during fiscal 2004, including Big Raise Hold’em, 3 Card Bonus, 6 ¹/2 Card Poker and Hi-Lo Stud Poker.

INTELLECTUAL PROPERTY

We believe that our patents, trademarks, licenses, copyrights and trade secrets are significant assets that provide us with a competitive advantage and are critical to our future profitability and growth. We protect our investment in research and development by patenting our technologies and game play methods. We also acquire patents and other intellectual property and routinely acquire and grant intellectual property licenses. Infringement claims, patent invalidity or expiration, license non-renewal, failure to stop infringers, delays in using our intellectual property to develop products or the costs of protecting our intellectual property could adversely affect our future results of operations and our financial position.

Patents.  We own numerous United States and international patents related to our products, related to future products that have not yet been introduced, related to potential product modifications and improvements and related to products we have sold or licensed to others. These patents include internally developed, purchased and

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licensed patents. In fiscal 2004, we purchased a number of patents to expand our base of proprietary table games, as well as to incorporate RFID technology into our live table game monitoring product line. Most of the patents we own have a life of 20 years from the filing date of the patent application and none of our patents will expire before 2007. We also have numerous patent applications pending and unfiled patent applications for our existing, planned and potential products. No assurance can be given that any such patents will be issued or that the patents we currently hold or have licensed or any new patents that we acquire will be or remain valid or will provide any competitive protection for our products.

Trademarks.  We own numerous United States and international trademark registrations and common law trademarks. Among these are Shuffle Master^®, the Shuffle Master logo, Shuffle Master Gaming^®, Let It Ride^®, Let It Ride Bonus^®, Let It Ride The Tournament^®, Three Card Poker^®, Four Card Poker^™, Fortune Pai Gow Poker^®, Royal Match 21^™, Casino War^®, 6 ¹/2 Card Poker^™, and Hi-Lo Stud Poker^™, Table Master^™, ACE^®, King^®, Deck Mate^®, MD2^™, one2six^™, Easy Chipper^™, Bloodhound^® and Intelligent Table System^™. We also use a number of licensed trademarks with the permission of the owners. The trademarks, logos, trade names, and product names used herein, other than ours, are the property of their respective owners. We also have numerous pending U.S. and foreign trademark applications. We have not only aggressively sought protection of our current product names and other trademarks, but have also sought protection for a number of names we plan to use in the future.

Intellectual Property Licenses.  We both acquire and license intellectual property including patents, trademarks, copyrights, character rights and technology from third parties. These licenses are subject to various conditions and restrictions and typically involve us paying royalties on a fixed or unit basis. While we do not believe that any of these current license agreements are in jeopardy of being terminated, we can make no assurance that all of these license agreements will remain in effect or that such licenses can be extended under terms favorable to us.

In addition, when we license our products to our customers, we also license the right to use our intellectual property. We typically earn license royalties on a fixed or unit basis and on a lifetime or periodic basis. We do not license our intellectual property to other gaming companies for their use in shuffler or table game products. For certain of our intellectual property, we have granted limited licenses to others for use in areas that are not associated with our core products.

Other Intellectual Property.  In addition to patents, we also protect much of our intellectual property with copyrights, trademark registrations, as trade secrets and by using non-disclosure agreements. No assurance can be given that we will be successful in maintaining the confidentiality of our proprietary information. Further, costs associated with defending and pursuing infringement claims can be substantial. In the absence of valid patent, copyright, trademark or trade secret protection, we would be vulnerable to competitors who could lawfully copy our products and technology.

Product-Related Agreement.  We are party to certain cross-licensing and cross-supplier agreements, including with Progressive Games. Under these agreements, we have certain rights to third party intellectual property. There are no royalty obligations with respect to any of these agreements that are material to our results of operations. Further, none of the royalties that we receive from these agreements are material to our results of operations.

Infringement and Litigation.  We do not believe that any of our products, methods or technologies infringe the patents and other intellectual property rights of others. However, we have been and are subject to litigation claiming that we have infringed the rights of others. We have also brought actions against others to protect our rights. For a discussion of these cases see “Item 3. Legal Proceedings,” included elsewhere in this Annual Report.

GAMING REGULATION

Overview.  We are subject to a wide range of complex gaming laws and regulations in 190 jurisdictions, both foreign and domestic, in which we are licensed. Jurisdictions require us to be licensed, our key personnel to be found suitable or licensed, and our products to be reviewed and approved before placement. Additionally, gaming laws and regulations of most jurisdictions provide that beneficial owners of 5% or more of our common stock are subject to reporting procedures and may be subject to licensure that includes suitability investigations and submission of personal and financial information as required. Furthermore, most jurisdictions have ongoing

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reporting requirements for certain transactions and are concerned with our accounting practices, internal controls, business relationships, and the fair operation of our products. Gaming regulatory requirements vary from jurisdiction to jurisdiction and licensing, approval, and processes related to findings of suitability of the Company, our products, key personnel, and certain shareholders can be lengthy and expensive.

General Regulatory Licensing and Approvals.  We intend to maintain our existing licenses and to seek the necessary licenses, approvals and findings of suitability of us, our products and our management personnel in new jurisdictions where we anticipate sales opportunities. We have never been denied a license, permit or approval necessary to do business in any jurisdiction, nor had a license suspended or revoked. However, there can be no assurance that new licenses, approvals or findings of suitability will be obtained or that our existing licenses will not be revoked, suspended or conditioned. If a license, approval or finding of suitability is required by a regulatory authority and we fail to seek or do not receive the necessary license or finding of suitability, then we may be prohibited from distributing our products for use in the respective jurisdiction or may be required to provide our products through other licensed entities at a reduced profit to us. There can also be no assurance that we will be able to obtain the necessary approvals for our products as they are developed. In addition, changes in legislation or in judicial or regulatory interpretations could occur which could adversely affect us.

We are licensed as a manufacturer and distributor of gaming devices, an operator of inter-casino linked systems and a slot route operator in Nevada. We are a gaming-related casino service industry licensee in New Jersey and hold supplier, manufacturer and distributor licenses in numerous other jurisdictions throughout North America and elsewhere. Due to similarities in jurisdictional regulatory transaction reporting, as well as manufacturer, distributor, and product licensing requirements, only the specifics of Nevada gaming law requirements are provided below as being representative of gaming regulations to which we are subject in other jurisdictions.

Nevada Regulatory Matters.  We are subject to the Nevada Gaming Control Act (the “Nevada Act”) and to the licensing and regulatory control of the Nevada State Gaming Control Board (the “Nevada Board”), the Nevada Gaming Commission (the “Nevada Commission”), and various local, city and county regulatory agencies (collectively, the “Nevada Gaming Authorities”).

The laws, regulations and supervisory procedures of the Nevada Gaming Authorities are based upon declarations of public policy which are concerned with, among other things: (i) the character of persons having any direct or indirect involvement with gaming to prevent unsavory or unsuitable persons from having a direct or indirect involvement with gaming at any time or in any capacity; (ii) application of appropriate accounting practices and procedures; (iii) maintenance of effective control over the financial practices and financial stability of licensees, including procedures for internal controls and the safeguarding of assets and revenues; (iv) record-keeping and reporting to the Nevada Gaming Authorities; (v) fair operation of games; and (vi) the raising of revenues through taxation and licensing fees.

We are registered with the Nevada Commission as a publicly traded corporation and are licensed as a manufacturer and distributor of gaming devices, an operator of inter-casino linked systems and a slot route operator. Such licenses are not transferable and require periodic payment of fees. The Nevada Gaming Authorities may limit, condition, suspend or revoke a license, registration, approval or finding of suitability for any cause deemed reasonable by such licensing agency. If it were determined that we violated gaming laws, then the approvals and licenses we hold could be limited, conditioned, suspended or revoked, and we, and the individuals involved, could be subject to substantial fines for each separate violation of the gaming laws at the discretion of the Nevada Commission. Each type of gaming device, slot game, slot game operating system, table game or associated equipment manufactured, distributed, leased, licensed or sold in Nevada must first be approved by the Nevada Board and, in some cases, the Nevada Commission. We must regularly submit detailed financial and operating reports to the Nevada Board. Certain loans, leases, sales of securities and similar financing transactions must also be reported to or approved by the Nevada Commission.

Certain officers, directors and key employees are required to be found suitable by the Nevada Commission and employees associated with gaming must obtain work permits which are subject to immediate suspension under certain circumstances. An application for suitability may be denied for any cause deemed reasonable by the Nevada Commission. Changes in specified key positions must be reported to the Nevada Commission. In addition to its authority to deny an application for a license, the Nevada Commission has jurisdiction to disapprove a

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change in position by an officer, director or key employee. The Nevada Commission has the power to require licensed gaming companies to suspend or dismiss officers, directors or other key employees and to sever relationships with other persons who refuse to file appropriate applications or whom the authorities find unsuitable to act in such capacities.

The Nevada Commission may also require anyone having a material relationship or involvement with us to be found suitable or licensed, in which case those persons are required to pay the costs and fees of the Nevada Board in connection with the investigation. We customarily reimburse such costs and fees. Any person who acquires more than 5% of our voting securities must report the acquisition to the Nevada Commission; any person who becomes a beneficial owner of 10% or more of our voting securities is required to apply for a finding of suitability. Under certain circumstances, an “Institutional Investor,” as such term is defined in the regulations of the Nevada Commission, which acquires more than 10% but not more than 15% of our voting securities, may apply to the Nevada Commission for a waiver of such finding of suitability requirements, provided the Institutional Investor holds the voting securities for investment purposes only. The Nevada Commission has amended its regulations pertaining to Institutional Investors to temporarily allow an Institutional Investor to beneficially own more than 15%, but not more than 19%, if the ownership percentage results from a stock repurchase program. These Institutional Investors may not acquire any additional shares and must reduce their holdings within one year from constructive notice of exceeding 15%, or must file a suitability application. An Institutional Investor will be deemed to hold voting securities for investment purposes only if the voting securities were acquired and are held in the ordinary course of business as an Institutional Investor and not for the purpose of causing, directly or indirectly, the election of a majority of our board of directors, any change in our corporate charter, bylaws, management, policies or operations, or any of our gaming affiliates, or any other action which the Nevada Commission finds to be inconsistent with holding our voting securities for investment purposes only.

Any person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do so by the Nevada Commission may be found unsuitable based solely on such failure or refusal. The same restrictions apply to a record owner if the record owner, when requested, fails to identify the beneficial owner. Any security holder found unsuitable and who holds, directly or indirectly, any beneficial ownership of the common stock beyond such period of time as may be prescribed by the Nevada Commission may be guilty of a gross misdemeanor. We are subject to disciplinary action if, after we receive notice that a person is unsuitable to be a security holder or to have any other relationship with us, we: (i) pay that person any dividend or interest upon our voting securities; (ii) allow that person to exercise, directly or indirectly, any voting right conferred through securities held by that person; or (iii) give remuneration in any form to that person. If a security holder is found unsuitable, then we may be found unsuitable if we fail to pursue all lawful efforts to require such unsuitable person to relinquish his or her voting securities for cash at fair market value.

The Nevada Commission may also, in its discretion, require any other holders of our debt or equity securities to file applications, be investigated and be found suitable to own the debt or equity securities. The applicant security holder is required to pay all costs of such investigation. If the Nevada Commission determines that a person is unsuitable to own such security, then pursuant to the regulations of the Nevada Commission, we may be sanctioned, including the loss of our approvals, if, without the prior approval of the Nevada Commission, we: (i) pay to the unsuitable person any dividends, interest or any distribution whatsoever; (ii) recognize any voting right by such unsuitable person in connection with such securities; (iii) pay the unsuitable person remuneration in any form; or (iv) make any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation or similar transaction.

We are required to maintain a current stock ledger in Nevada which may be examined by the Nevada Commission at any time, and to file with the Nevada Commission, at least annually, a list of our shareholders. The Nevada Commission has the power to require our stock certificates to bear a legend indicating that the securities are subject to the Nevada Act and the regulations of the Nevada Commission. However, to date, the Nevada Commission has not imposed such a requirement on us.

We may not make certain public offerings of our securities without the prior approval of the Nevada Commission. Also, changes in control of us through merger, consolidation, acquisition of assets, management or consulting agreements or any form of takeover cannot occur without prior investigation by the Nevada Board and approval by the Nevada Commission.

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Approvals are required from the Nevada Commission before we can make exceptional repurchases of voting securities above the current market price and before a corporate acquisition opposed by management can be consummated. Nevada’s gaming regulations also require prior approval by the Nevada Commission if we adopt a plan of recapitalization proposed by our Board of Directors in opposition to a tender offer made directly to our shareholders for the purpose of acquiring control of us.

We have formally adopted a compliance plan and appointed a compliance committee in accordance with Nevada Commission requirements. Our compliance committee meets quarterly and is responsible for implementing and monitoring our compliance with regulatory matters. This committee also reviews information and reports regarding the suitability of potential key employees or other parties who may be involved in material transactions or relationships with us.

Federal Registration.  As a manufacturer and distributor of gaming devices, including Table Master products and slot machines, we are registered pursuant to and have complied with the Federal Gambling Devices Act of 1962 (the “Federal Act”). In order to manufacture, sell, deliver or operate our gaming devices, including our Table Master product, we must renew our federal registration annually and comply with its various record-keeping and equipment identification requirements. The Federal Act makes it unlawful for a person or business entity to manufacture, deliver, receive, operate, lease or sell gaming devices in interstate or foreign commerce unless that person or entity has first registered with the Attorney General of the United States. Violation of the Federal Act may result in seizure and forfeiture of the equipment, as well as other penalties.

Native American Gaming Regulation.  Gaming on Native American lands is governed by the Federal Indian Gaming Regulatory Act of 1988 (“IGRA”) and specific tribal ordinances and regulations. Class III gaming, as defined under IGRA, also requires a Tribal-State Compact, which is a written agreement between a specific tribe and the respective state. This compact authorizes the type of Class III gaming activity and the standards, procedures and controls under which the Class III gaming activity must be conducted. The National Indian Gaming Commission (“NIGC”) has oversight authority over gaming on Native American lands and generally monitors tribal gaming including the establishment and enforcement of required minimum internal control standards. Each Tribe is sovereign and must have a tribal gaming commission or office established to regulate tribal gaming activity to ensure compliance with IGRA, NIGC, and its Tribal-State Compact. We have complied with each of the numerous vendor licensing and specific product approval and shipping notification requirements imposed by Tribal-State Compacts and enforced by tribal and/or state gaming agencies under IGRA in the Native American lands in which we do business.

Other Jurisdictions.  We have obtained or are in the process of obtaining all licenses/permits required by jurisdictions having legalized gaming. In general, such requirements are similar to Nevada in that there are company approvals as well as individual and product approvals.

Product Approvals.  Each of our products is subject to extensive testing and review by multiple state, jurisdictional or third party laboratories. The detail and extent of the review generally depends upon the classification of the product by the respective gaming authority as a new game, game variation, associated equipment, gaming equipment or gaming device. The time required for product testing can be extensive and is subject to a wide range of formal and informal standards that can lead to great uncertainty as to the length of the regulatory approval process. Additionally, product testing is subject to changing standards, as a result of which, we may be required to upgrade or revise our products. We believe the laboratories responsible for testing are handling a great number of product submissions and are under the pressure of limited funding and resources. Such limitations could cause our product approvals to be delayed for unknown periods of time. A description of regulatory status and issues related to each of our product segments follows:

Utility Products – We have obtained approvals for our shuffler products, excluding developmental models, in all gaming markets in North America where casino and poker gaming is legalized. We have also received or filed (directly or through our international distributors) for approval of our shuffler products and related software in additional international jurisdictions where required. Our shufflers and related software are typically classified and approved as associated equipment or as gaming equipment, depending on the particular jurisdiction and their regulations. Associated equipment is equipment that is not classified as a gaming device or gaming equipment but, which due to its integral relationship to the conduct of licensed gaming, regulatory authorities have discretion

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to require manufacturers and distributors to meet licensing or suitability requirements prior to or concurrent with the use of such equipment in the respective jurisdiction. Although the classifications of shufflers vary among jurisdictions, most, if not all, jurisdictions require specific hardware and software approvals and certain licenses or permits to be held by companies, their key personnel, and service technicians in connection with the manufacture, distribution, service, and repair of such equipment.

Entertainment Products – Our Let It Ride and Three Card Poker table games are approved in all major casino gaming markets in North America and numerous other international gaming jurisdictions. Four Card Poker, Big Raise Hold’em, Fortune Pai Gow Poker, and Royal Match 21 are approved in most jurisdictions in North America, with additional approvals expected throughout fiscal 2005. We intend to submit 6 ¹/2 Card Poker and Hi-Lo Stud Poker to regulatory laboratories for approvals in the first quarter of fiscal 2005 and expect approval in certain jurisdictions in the second quarter. Similar approvals will be required for any future table games and related equipment.

Our Table Master multi-player video table game unit with blackjack was first submitted for regulatory testing in the third quarter of fiscal 2004 and is currently approved in four jurisdictions. We expect to have Table Master blackjack approved in most domestic jurisdictions by the end of fiscal 2005. Additionally, our Table Master unit with Three Card Poker was approved in certain jurisdictions in the first quarter of fiscal 2005. We intend to submit Table Master with other proprietary games to the regulatory laboratories for testing during fiscal 2005 and expect approvals in late fiscal 2005.

OTHER BUSINESS INFORMATION

Customer Service.  As part of our strategy to maintain and expand our market position, we have made a commitment to maintain a high level of service to our customers. We have numerous field service centers in the U.S. and internationally, including our most recently opened service center in Macau. Within our service areas, we provide regular preventative maintenance service and on-demand repair service for our leased equipment, provide service training to our customers, and provide back-up units to our lessees. For casinos that purchase our products, we offer service contracts providing service benefits similar to those of leased units or parts-only warranty contracts.

Research and Development Costs.  Because we believe that one of our strengths is identifying new product opportunities and developing new products, we expect to continue to spend a significant portion of our annual revenues on research and development, including the acquisition of intellectual property from third parties. Our total research and development expenses for continuing operations were $6,185,000, $4,183,000, and $2,667,000 in fiscal 2004, 2003, and 2002, respectively.

Significant Customer Sales, Foreign Sales and Foreign Assets.  No individual customer accounted for more than 10% of total revenue earned during fiscal 2004. In fiscal 2004, 2003 and 2002, our foreign sales accounted for 23%, 17% and 26% of our consolidated revenues. As of October 31, 2004, 62% of our long-lived assets, primarily acquired intangible assets, were outside the U.S. Additional information regarding our foreign sales and long-lived assets by geographic region is included in Note 15 to our consolidated financial statements.

Seasonality and Business Fluctuations.  Quarterly revenue and net income may vary based on the timing of the opening of new gaming jurisdictions, the opening or closing of casinos or the expansion or contraction of existing casinos, gaming regulatory approval or denial of our product and corporate licenses, the introduction of new products or the seasonality of customer capital budgets.

Employees.  As of October 31, 2004, we had 246 full-time, eleven part-time and one temporary employee. We are not subject to any collective bargaining agreement and we believe that our employee relations are good.

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ITEM 2.  PROPERTIES

We lease facilities with approximately 43,500 square feet in Nevada for our corporate headquarters, manufacturing, and field service. In addition, we lease an approximately 5,400 square foot facility in Vienna, Austria as our International headquarters. Our shuffler research and development and other administration activities are located in an approximately 5,000 square foot facility in Minnesota. We also lease other facilities with approximately 16,500 aggregate square feet for field service centers in various locations in the United States and internationally. The leases are not individually significant.

We believe that our existing properties are suitable and adequate for our current needs and that additional facilities are available within our current locations to support expansion, if required.

ITEM 3.  LEGAL PROCEEDINGS

For information on Legal Proceedings, see Note 16 to our consolidated financial statements included in Item 8 of this Annual Report.

Litigation is inherently unpredictable. Our current assessment of each matter may change based on future unknown or unexpected events. If any litigation were to have an adverse result that we did not expect, there could be a material impact on our results of operations or financial position. 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, except as may be required by applicable law, statute or regulation. We believe that the final disposition of these matters will not have a material adverse effect on our financial position, results of operations or liquidity.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of our security holders during the fourth quarter of the fiscal year ended October 31, 2004.

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PART II

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

StockListing.  Our common stock is traded on The NASDAQ National Market under the symbol SHFL. As of January 5, 2005, we had approximately 285 shareholders of record. There are a significantly greater number of shareholders whose shares are held in street name. Based on information we collected as of January 5, 2005, we estimate that we have approximately 16,000 beneficial holders in total. The following table sets forth quarterly high and low prices for trades of our common stock during fiscal 2004 and 2003:

The closing price of our common stock on January 10, 2005, was $44.54 per share.

Dividend Policy.  We have not paid dividends on our common stock.

Transfer Agent.  Our stock transfer agent and registrar is Wells Fargo Bank Minnesota, N.A., Shareowner Services, 161 North Concord Exchange, South St. Paul, Minnesota 55075, (800) 468-9716.

Securities Authorized for Issuance Under Equity Compensation Plans.  The information under the caption “Equity Compensation Plan Information” in our 2004 Proxy Statement is incorporated herein by reference.

Stock splits.  In March 2004, our board of directors approved a three-for-two common stock split, with new shares distributed in the form of a dividend on April 16, 2004, to shareholders of record on April 5, 2004 (the “April 2004 Split”). Share and per share amounts have been adjusted for all periods presented herein to reflect the April 2004 Split.

In December 2004, our board of directors approved a three-for-two common stock split, with new shares to be distributed in the form of a dividend on January 14, 2005, to shareholders of record on January 3, 2005 (the “January 2005 Split”). All share and per share amounts presented herein, other than on the face of the statements of income, are on a pre January 2005 Split basis.

Stock Repurchases.  The following table provides monthly detail regarding our share repurchases during the three month period ended October 31, 2004 (in thousands, except per share amounts):

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ITEM 6.  SELECTED FINANCIAL DATA

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ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

BUSINESS OVERVIEW

(In thousands, except units)

We develop, manufacture and market technology-based products for the gaming industry for placement on the casino floor. Our products primarily relate to our casino customers’ table game activities and are focused on increasing their profitability, productivity and security. Our Utility Products include a full line of automatic card shufflers for use with the vast majority of card table games and chip sorting machines. Our Entertainment Products include our line of live proprietary poker, blackjack, baccarat, and pai gow poker based table games and our newly re-engineered Table Master^™ product that delivers our popular branded table game content on a multi-player video platform. In addition, we have acquired or are developing other products to automatically gather data and to enable casinos to track table game players, such as our Bloodhound and Intelligent Table System^™ products. All of our product lines compete or will compete with other gaming products, such as slot machines, blackjack tables, keno, craps, and roulette, for space on the casino floor.

We sell, lease or license 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 or a longer-term sales-type lease. We offer our products worldwide in markets that are significantly regulated. We manufacture the majority of our products at our headquarters and manufacturing facility in Las Vegas, Nevada. In addition, we outsource the manufacturing of certain of our products, both in the United States and Europe.

Management’s Discussion and Analysis contains forward-looking statements. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of factors discussed in “Forward Looking Statements” elsewhere in this annual report.

ACQUISITIONS

CARD.  Effective May 1, 2004, we acquired a 100% ownership interest in CARD from Casinos Austria AG. CARD, which is now a subsidiary of our Shuffle Master International subsidiary, provides us with a headquarters and direct sales force for international business centrally located in Vienna with a satellite office in New Zealand. CARD develops, manufactures and supplies innovative casino products including the one2six, a shuffler that accommodates up to six decks of cards and can be used for almost every casino card game. In addition, CARD’s products under development include the Easy Chipper, a next-generation chip sorting device.

The acquisition is being accounted for using the purchase method of accounting. Consideration to the seller consisted of a Euro-denominated cash payment of € 25,935 and the issuance of 767 shares of our common stock. In addition, we estimate total direct acquisition costs, consisting primarily of legal and due diligence fees, to be approximately $1,930.

BTI.  On February 24, 2004, we acquired certain assets of BTI, a privately held corporation that develops and distributes table games to casinos throughout North America.

The acquired assets and operations, which have been assigned to our Entertainment Products segment, include the Fortune Pai Gow Poker, Royal Match 21 and Casino War table games and related patents, trademarks and other intellectual property, as well as the “BET Technology, Inc.” name. The acquired installed base of Fortune Pai Gow Poker, Royal Match 21, and Casino War table games was 1,090 units at the acquisition date.

The acquisition price includes fixed installments and a promissory note, which is secured as set forth in the acquisition agreement (the “Agreement”), with contingent installment payments. The fixed installments comprise $6,000 that was paid on the closing date and $4,000 that was paid in August 2004. Subject to other terms and conditions, the contingent installments are based on future revenue performance of Fortune Pai Gow. Beginning November 2004, we will pay monthly note installments based on a percentage of such revenue for a period of up to ten years, not to exceed $12,000. We have funded and expect to fund the acquisition price with existing cash and cash flow from operations.

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Sega.  In April 2003, we acquired certain product inventory and product intellectual property rights from Sega for $1,730 in cash. The intellectual property comprises worldwide rights (excluding Japan) to Sega’s multi-player games, including Royal Ascot, Royal Derby, Sega Blackjack, Bingo Party and Roulette Club (collectively, “Games License”), and a five year non-compete covenant covering certain games in North America. The Games License is exclusive in North America for ten years and non-exclusive thereafter. The acquired products were assigned to our Entertainment Products segment and are now marketed under the product name Table Master. We are in the process of expanding these products by incorporating our existing proprietary table game titles such as Let It Ride and Three Card Poker into the multi-player games.

DISPOSITIONS

In December 2003, our board of directors approved and we committed to a plan to divest of our slot products operations and assets, based on our determination that this product line was no longer a strategic fit with our refocused core business strategy of providing products and services for the table game area of casinos. As of January 31, 2004, our slot products divestiture was substantially complete. A more detailed discussion is included under the heading “Discontinued Operations.”

CONSOLIDATED RESULTS OF OPERATIONS

(In thousands, except per share amounts)

Our revenue and results of operations are most affected by unit placements, through sale or lease, of our products; as such, we are a revenue-driven business. The number and mix of products placed and the average lease or sales price are the most significant factors affecting our gross margins. These factors are, in turn, affected by the gaming industry generally and our customers’ assessment of our products. To a lesser extent, our overall financial results are affected by fluctuations in selling, general and administrative expenses and our investment in research and development activities.

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REVENUE AND GROSS MARGIN

We earn our revenue in several ways. The largest percentage is by leasing or licensing our products to casino customers, generally under month-to-month fixed fee contracts. Product lease contracts typically include parts and servicing. We also offer most of our products for sale with an optional parts and service contract. A more detailed discussion of our revenue components and related revenue recognition policies is included under the heading “Critical Accounting Policies.”

Our overall revenue growth was primarily due to the increase in both leased and sold units in both our product segments. The increase in the number of units leased and sold resulted from the introduction of new products, greater placements of existing products, the expansion of legal gaming into new jurisdictions and acquisitions of products. A more detailed discussion of our revenue is included for each of our operating segments under the heading “Segment Operating Results.”

Fiscal 2004 compared to Fiscal 2003

Intellectual property amortization expense associated with products acquired as part of our CARD and BTI acquisitions is recorded as a cost of sales. As a result, although total gross margin dollars increased, the gross margin as a percentage of revenue declined. Amortization expense associated with these products was $1,832 for fiscal 2004, representing an approximate 2 point decline in gross margin percentage.

Leases and royalties gross margin percentage for fiscal 2004 declined primarily due to fiscal 2004 including the above-mentioned amortization from table games acquired from BTI.

Sales and service gross margin percentage decreased for fiscal 2004 primarily due to the inclusion of the CARD product lines, and related intangible asset amortization, beginning May 1, 2004. The reduction in the sales gross margin percentage from the CARD products was offset somewhat by a greater volume of sales of lifetime licenses for our proprietary table games, which generally carry higher margins.

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Fiscal 2003 compared to Fiscal 2002

Gross margin increased from fiscal 2002 to fiscal 2003 largely due to the increase in our revenue and, to a lesser extent, due to the improvement in the gross margin percentage for our shufflers and table game products. During fiscal 2003, total gross margin percentage also benefited from better absorption of indirect cost of sales, primarily manufacturing overhead costs, due to our higher production levels, which resulted from our higher revenue and unit volume.

Leases and royalties gross margin percentage improved for fiscal 2003, primarily due to a reduction in depreciation expense for our leased products when compared to the prior fiscal year. Depreciation expense was lower in fiscal 2003 because more leased, or available for lease, products were fully depreciated than in fiscal 2002.

Sales and service gross margins for fiscal 2003 increased primarily due to a change in the sold product mix in fiscal 2003 compared to fiscal 2002. During the third quarter of fiscal 2003, we began selling lifetime licenses for our proprietary table games, which generally carry higher margins. Prior to this, proprietary table games were available only on a monthly royalty fee basis. Additionally, fiscal 2003 revenue included a greater percentage of domestic shuffler sales, which generate a higher margin than foreign distributor sales.

OPERATING EXPENSES

Selling, General and Administrative Expenses (“SG&A”).  The rate of increase in SG&A during fiscal 2004 was consistent with our rate of increase in revenues. As such, SG&A as a percentage of revenue remained the same. The greatest contributor to our increase in SG&A was legal fees associated with our legal proceedings, which were $3,501 for fiscal 2004 compared to $2,077 for fiscal 2003. We expect that our legal fees will continue to vary from period to period depending on our level of legal activity to protect our intellectual property. In addition, the establishment of our European headquarters in Vienna, Austria through our acquisition of CARD, contributed $1,180 to our fiscal 2004 SG&A expenses.

SG&A increased for fiscal 2003, compared to fiscal 2002, primarily due to the increase in legal fees associated with our various legal proceedings related to our intellectual property, which were $2,077 in fiscal 2003 compared to $309 for fiscal 2002. The increase in SG&A for fiscal 2003 was also because our bad debt expense increased by $372. During fiscal 2003, our volume of sales-type lease transactions increased significantly. We increased our bad debt allowance to provide for collection risk associated with carrying longer term and higher amounts of accounts receivable.

Research and Development Expenses (“R&D”). Our R&D spending increases, in both fiscal 2004 and fiscal 2003, were distributed among all of our product lines, as we have continued to invest in new product development, including next generation shufflers and automated player tracking technologies. In addition, in April 2003, we acquired and began re-engineering our Table Master product line. This activity continued through fiscal 2004.

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OTHER INCOME (EXPENSE)

Other income (expense) is comprised of the following for the years ended October 31:

Interest income increased primarily due to increases in our sales-type leasing activities over the past year, which have resulted in a greater investment in sales-type lease balance as of October 31, 2004. Sales-type leases bear interest.

The increase in interest expense is due to the issuance of $150,000 of contingent convertible senior notes in April 2004. A more detailed discussion of these Notes is included below under the heading “Liquidity and Capital Resources.”

Prior to the completion of our CARD acquisition, we entered into foreign currency exchange contracts to fix the U.S. dollars estimated to be required to fund the Euro-denominated cash component of the CARD purchase price which resulted in a foreign currency exchange loss of $703. The contracts do not meet the accounting criteria for hedge accounting, and accordingly, the foreign currency exchange loss is included in our operating results for the year ended October 31, 2004.

INCOME TAXES

Our effective income tax rate for continuing operations for the years ended October 31 is as follows:

Significant changes in the components of our effective tax rate include:

Looking forward, our annual effective tax rate may fluctuate due to changes in our amount and mix of U.S. and foreign income, changes in tax legislation, and changes in our estimates of federal tax credits and other tax deductions.

During fiscal years 2004, 2003 and 2002, we recorded income tax benefits of $5,388, $2,661 and $8,571, respectively, related to deductions for employee stock option exercises. The tax benefit, which increased prepaid income taxes and additional paid-in capital by equal amounts, had no affect on our provision for income taxes.

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EARNINGS PER SHARE