Exhibit 99.1

SHFL ENTERTAINMENT, INC

FOR THE FISCAL YEAR ENDED OCTOBER 31, 2013

CONTENTS

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Independent Auditor’s Report

To the Board of Directors and Shareholders of SHFL entertainment, Inc.

We have audited the accompanying consolidated financial statements of SHFL entertainment, Inc. and its subsidiaries (the “Company”), which comprise the consolidated balance sheets as of October 31, 2013 and 2012, and the related consolidated statements of operations, changes in shareholders’ equity and cash flows for each of the three years in the period ended October 31, 2013.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on the consolidated financial statements based on our audits.  We conducted our audits in accordance with auditing standards generally accepted in the United States of America.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements.  The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error.  In making those risk assessments, we consider internal control relevant to the Company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances.  With respect to the 2013 consolidated financial statements, we did not consider internal control for the purpose of expressing an opinion on the effectiveness of the Company’s internal control; accordingly, we express no such opinion.  An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.  We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SHFL entertainment, Inc., and its subsidiaries at October 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 2013 in accordance with accounting principles generally accepted in the United States of America.

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SHFL ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

See Notes to Consolidated Financial Statements

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SHFL ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

See Notes to Consolidated Financial Statements

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SHFL ENTERTAINMENT, INC.

CONSOLIDATED BALANCE SHEETS

See Notes to Consolidated Financial Statements

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SHFL ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

See Notes to Consolidated Financial Statements

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SHFL ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 See Notes to Consolidated Financial Statements

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SHFL ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Supplemental Disclosures of Cash Flows Information—

See Notes to Consolidated Financial Statements

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SHFL ENTERTAINMENT, INC.

Notes to Consolidated Financial Statements

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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 five 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; Electronic Table Systems (“ETS”), which include various e-Table game platforms; Electronic Gaming Machines (“EGM”), which include video slot machines; and our newly introduced iGaming segment, which includes online versions of our specialty table games offered in a free-to-play format and for real money gambling in regulated online markets. 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 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.

We lease, license and sell our products. When we lease or license our products, we generally negotiate a month-to-month fixed fee contract or to a lesser extent, we enter into participation arrangements whereby casinos pay a fee to us based on a percentage of net win. 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 regulated markets.

Utility. Our Utility segment develops products for licensed casino operators that enhance table game speed, productivity, profitability and security. Utility products include various models of automatic card shufflers to suit specific games, as well as deck checkers 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 consists of proprietary table games that enhance our casino customers’ and other licensed operators’ table game operations. Products in this segment include our internally developed and acquired proprietary table games, side bets, add-ons and progressives. Our proprietary content and features are also added to public domain games such as poker, baccarat, pai gow poker, craps and blackjack table games and to electronic platforms such as Table Master, SHFL FUSION Virtual (formerly Vegas Star) and i-Table.

Electronic Table Systems.  Our ETS segment consists of various products involving popular table game content using e-Table game platforms. Our primary ETS products are i-Table, Table Master, SHFL FUSION Virtual and SHFL FUSION Hybrid Table Games.  Our i-Table platform combines an electronic betting interface with a live dealer and live cards or a live wheel that is designed to improve game speed and security while reducing many operating expenses associated with live tables. Our Table Master and SHFL FUSION Virtual 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. Like the i-Table, our SHFL FUSION Hybrid 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. Unlike the i-Table, SHFL FUSION Hybrid Table Games is not confined to a fixed number of seats and can have hundreds of terminals tied to one game outcome.

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Electronic Gaming Machines. Our EGM segment develops and delivers our video slot machines into markets including Australia, New Zealand, Asia, Mexico, parts of South America, and most recently, select markets in the United States. We offer a selection of video slot titles developed as stand-alone units or as linked progressive machines. In addition to selling the full EGM complement, we sell software conversion kits that allow existing EGM terminals to be converted to other games that operate on the current PC4 operating platform. Popular titles for our EGMs include Cats Hats & Bats, Eureka Gold Mine 2, 88 Fortunes, Emerald Fortunes and Mahajanga. In addition, we continue to develop a popular range of games utilizing the Pink Panther™ brand, under license from Metro-Goldwyn-Mayer Studios, Inc. We also develop games incorporating features and bonus rounds based on the popular 1960’s animated television series, The FlintstonesTM & © Hanna-Barbera s13.

iGaming.  Our iGaming segment delivers online versions of our specialty table games via our proprietary content delivery platform to online operators. Utilizing cloud-based technology, our platform is designed to deliver our games across multiple channels such as the web, social networks, tablets and smart phones both in free-to-play environments and for real money gambling in regulated online markets. We also license our content to online operators and protect the integrity of our valuable brands by pursuing online operators that infringe upon our intellectual property. Our iGaming segment primarily offers products to our customers through business-to-business (“B2B”) lease, license and participation arrangements.

Merger. On November 25, 2013, the Company was acquired by Bally Technologies, Inc. (“Bally”) and is now an indirect wholly-owned subsidiary of Bally.  Please refer to the subsequent event footnote below for further discussion.

Principles of consolidation. Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and include all adjustments necessary to fairly present our consolidated results of operations, financial position and cash flows for each period presented.

Our consolidated financial statements include the accounts of SHFL entertainment, Inc. and our wholly-owned domestic and foreign subsidiaries. All inter-company accounts and transactions have been eliminated. We have no unconsolidated subsidiaries.

Use of estimates and assumptions. The preparation of our consolidated financial statements in conformity with U.S. 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates and assumptions are used for, but not limited to: (1) revenue recognition including the assessment of collectability and multiple element arrangements; (2) allowance for doubtful accounts; (3) asset impairments, including determination of the fair value of goodwill and indefinite lived trade names; (4) depreciable lives of assets; (5) useful lives and amortization of intangible assets; (6) income tax valuation allowances and uncertain tax positions; (7) fair value of stock options; and (8) the need for contingency and litigation reserves. 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 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.

Concentration of credit risk. Our financial instruments that have potential concentrations of credit risk include cash and cash equivalents, accounts receivable, investments in sales-type leases and notes receivable. We maintain cash balances that exceed federally insured limits; however, we have incurred no losses on such accounts. Accounts receivable, investments in sales-type leases and notes receivable have concentration of credit risk because they all relate to our customers in the gaming industry.  We generally grant customers credit terms for periods of 30 to 90 days or may grant extended credit terms, with interest at prevailing rates.  Notes receivable are generally collateralized by the related equipment sold, although the value of such equipment, if repossessed, may be less than the receivable balance outstanding and the ability to actually repossess the equipment may not always be undisputed or able to be effectively executed.

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From time to time, we make significant sales to customers that exceed 10% of our then-outstanding accounts receivable balance. As of October 31, 2013 and 2012, no customer balance exceeded 10% of our net trade accounts receivable. As of October 31, 2013 and 2012 one customer exceeded 10% of our net investment in sales-type lease and notes receivable.  For the fiscal years ended 2013, 2012 and 2011, no individual customer accounted for more than 10% of consolidated revenue.

Inventories.  Inventories are stated at the lower of cost, determined on a first-in-first-out basis, or market.  Cost elements included in work-in-process and finished goods include raw materials, direct labor and manufacturing overhead. We regularly review inventory quantities and update estimates for the net realizable value of inventories. This process includes examining the carrying values of new and used gaming devices, parts and ancillary equipment in comparison to the current fair market values for such equipment (less costs to sell or dispose). Some of the factors involved in this analysis include the overall levels of our inventories, the current and projected sales levels for such products, the projected markets for such products, the costs required to sell the products, including refurbishment costs and importation costs for international shipments and the overall projected demand for products once the next generation of products are scheduled for release.

As a result of our ongoing analysis of inventory, we recognized inventory write-downs of approximately $0.2 million, $0.02 million and $1.1 million for fiscal years 2013, 2012 and 2011, respectively.  Additional valuation charges could occur in the future as a result of changes in the factors listed above.

Products leased and held for lease. Our products are primarily leased to customers pursuant to month-to-month fixed fee contracts and to a lesser extent through participation arrangements whereby casinos pay a fee to us based on a percentage of net win. Products leased and held for lease are stated at cost, net of depreciation. Depreciation on leased products is calculated using the straight-line method over the estimated useful life of three to five years. We provide maintenance of our products on lease as part of our standard lease agreements.

Property and equipment. Property and equipment is stated at cost. Depreciation is recorded using the straight-line method over the estimated useful life or lease terms, if shorter, for leasehold improvements.  Depreciation attributable to manufacturing operations is included in cost of sales and service.  The remaining component of depreciation is included in selling, general and administrative expenses.

We also review these assets for impairment whenever events or circumstances indicate the carrying value may not be recoverable or warrant a revision to the estimated remaining useful life.

Goodwill and other indefinite lived intangible assets. We do not renew or extend the term of our intangible assets. We review our goodwill for impairment annually in October or when circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.  The goodwill impairment analysis may start with an assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.  If, after assessing the qualitative factors, we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, or if we do not perform a qualitative assessment, we will perform a two-part impairment test.  In the first step, we use a discounted cash flow model (income approach) and the Guideline Public Company Model (market approach) to assess the fair values of our reporting units, which are the same as our operating segments.  These two methodologies are weighted equally to determine the reportable segment fair value.  The fair value of the reporting unit is then compared to the book value of the reporting unit, including its goodwill. If the fair value of the reporting unit is greater than its carrying amount, goodwill is not considered impaired.  If the fair value is less than the book value, we perform a second step to compare the implied fair value of the reporting unit’s goodwill to its book value. The implied fair value of the goodwill is determined based on the estimated fair value of the reporting unit less the fair value of the reporting unit’s identifiable assets and liabilities. We record an impairment charge to the extent that the book value of the reporting unit’s goodwill exceeds its fair value.

Our income approach analysis is based on the present value of two components: the sum of our five-year projected cash flows and a terminal value assuming a long-term growth rate. The cash flow estimates are prepared based on our business plans for each reporting unit, considering historical results and anticipated future performance based on our expectations regarding product introductions and market opportunities. The discount rates used to determine the present value of future cash flows are derived from the weighted average cost of capital of a group of comparable companies with consideration for the size and specific risks of each our reporting units.

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As of October 31, 2013 and 2012, our goodwill totaled $87.6 million and $85.0 million, respectively. For the Utility, PTG and EGM reporting units our fiscal 2013 annual goodwill impairment analysis included an assessment of certain qualitative factors including, but not limited to, the results of the prior fiscal year fair value calculation, the movement of our share price and market capitalization, overall financial performance, and macro-economic and industry conditions.  We considered the qualitative factors and weighted the evidence obtained and determined that it is not more likely than not that the fair value of any reporting unit is less than its carrying amount.   In fiscal 2010 we performed the first step test required under previous guidance using an income approach and market approach and the results of that valuation indicated that each of these reporting units’ fair values were significantly higher than their carrying values.  We used a discount rate of 12.5% in the 2010 test and if we had increased the discount rate to 13.5% (all other assumptions held constant) the fair value of each reporting unit would have still exceeded its carrying value by at least 43%.

For the ETS reporting unit for fiscal 2013 we performed the two-part analysis described above.  We used a discount rate of 14.5% and if we had increased the discount rate to 15.5% (all other assumptions held constant) the fair value of the reporting unit would have still exceeded its carrying value by 19%.  In the Guideline Public Company Method we selected moderately lower multiples than the average of our peer companies and applied these multiples to our trailing twelve months revenue, projected fiscal 2014 revenue, and fiscal 2014 earnings before other income (expense), income tax, depreciation, amortization and share based compensation expense (“EBITDA”).  We weighted these multiples according to our judgment regarding the importance of each multiple as an indicator of value.  We also supplemented this market approach with revenue and EBITDA multiples determined from the acquisition by Bally as well as other recent mergers and acquisitions in the gaming supplier industry.

Although we believe the qualitative factors considered in the impairment analysis are reasonable, significant changes in any one of our assumptions could produce a significantly different result.  If our quantitative assumptions do not prove correct or economic conditions affecting future operations change, our goodwill could become impaired and result in a material adverse effect on our results of operations and financial position. For fiscal 2013, 2012 and 2011, we did not have any goodwill impairment loss.

We review the indefinite lived intangible assets for impairment at least annually through an analysis that starts with an assessment of qualitative factors to determine whether it is more likely than not that the fair value of indefinite lived assets are less than their carrying amounts.  If, after assessing the qualitative factors, we determine that it is more likely than not that our indefinite lived intangible assets are less than their carrying amounts, then we perform an impairment test.  The impairment test consists of selecting the relief from royalty model (income approach) to assess the fair value of our indefinite lived intangibles.  If the carrying amount of the indefinite lived intangibles exceeds its fair value, we recognize an impairment loss in an amount equal to that excess.

Our relief from royalty analysis is based on the projected revenue attributable to the asset, expected economic life of the asset, present value of the royalty rate (as a percentage of revenue) that would hypothetically be charged by a licensor of the asset to an unrelated licensee, and the discount rate that reflects the level of risk associated with receiving future cash flows attributable to the asset.  The model estimates are prepared based on our business plans for each trade name, considering historical results and anticipated future performance and market opportunities. The discount rates used to determine the present value of future cash flows would be derived from our weighted average cost of capital adjusted for asset specific premiums (if any).

As of October 31, 2013 and 2012, our indefinite lived intangible assets totaled $22.6 million and $24.5 million, respectively. Our fiscal 2013 annual indefinite lived intangible asset impairment analysis included an assessment of certain qualitative factors including, but not limited to, the results of the prior fiscal year fair value calculation, overall financial performance, and macro-economic and industry conditions.  We considered the qualitative factors and determined that it is not more likely than not that the fair value of the indefinite lived intangible assets are less than their carrying amounts. In fiscal 2011 we performed the quantitative test required under previous guidance using the relief from royalty method and the results of that valuation indicated that the fair values of our indefinite lived intangible assets were significantly higher than their carrying values.  The discount rate used for each trade name was 12.5% for our fiscal 2011.  The pre-tax royalty rate used for each trade name was 4.0% for fiscal 2011.  If we had increased the discount rate to 13.5% (all other assumptions held constant) the fair value of each trade name would have still exceeded its carrying value by at least 57%.

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Although we believe the qualitative factors considered in the impairment analysis are reasonable, significant changes in any one of our assumptions could produce a significantly different result. If our assumptions do not prove correct or economic conditions affecting future operations change, our indefinite lived intangible assets could become impaired and result in a material adverse effect on our results of operations and financial position.

For fiscal 2013, 2012 and 2011 we did not have any indefinite lived intangible asset impairment loss.

Other intangible assets. Other intangible assets include intellectual property for games, patents, trademarks, copyrights, licenses, developed technology, customer relationships and non-compete agreements that were purchased separately or acquired in connection with a business combination. All of our significant other intangible assets have finite useful lives and are amortized as the economic benefits of the intangible asset are consumed or otherwise used up. Amortization of customer relationships and non-compete agreements is included in selling, general and administrative expense and the remaining components of amortization are included in cost of sales and service and cost of leases and royalties.

Impairment of long-lived assets. We estimate the useful lives of our long-lived assets, excluding goodwill and indefinite lived intangible assets, based on historical experience, estimates of products’ commercial lives, the likelihood of technological obsolescence and estimates of the duration of commercial viability for patents, licenses and games.

We review our long-lived assets, excluding goodwill and indefinite lived intangible assets, for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable or warrant a revision to the estimated remaining useful life.  Such events or circumstances include, but are not limited to, a significant decrease in the fair value of the underlying business or market price of the long-lived asset, a significant adverse change in legal factors or business climate that could affect the value of a long-lived asset, or a current period operating or cash flow loss combined with a history of operating or cash flow losses.  We group long-lived assets for impairment analysis at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

Recoverability of the carrying amount of long-lived assets is measured by comparing the carrying amount to the estimated future undiscounted net cash flows that the assets are expected to generate. Those cash flows include an estimated terminal value based on a hypothetical sale at the end of the assets’ depreciation period. Estimating these cash flows and terminal values requires management to make judgments about the growth in demand for our products and sustainability of gross margins. If assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the long-lived asset exceeds its fair value.   For fiscal 2013, 2012 and 2011, we did not have any such impairment loss.

Deferred revenue. Deferred revenue consists of amounts collected or billed in excess of recognizable revenue.

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. Our standard sales contracts do not contain right of return provisions and we have not experienced significant sales returns. Therefore we have not recorded an allowance for sales returns.

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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 30 to 90 days. Financing for intangible property and sales-type leases for tangible property have payment terms ranging generally from 24 to 36 months and are usually 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. Revenue from the sale of lifetime licenses or settlements with online operators, under which we have no continuing obligation, is recorded on the effective date of the license or settlement 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. We allocate revenues among multiple deliverables in a multi-element arrangement, based on relative selling prices. In order of preference, relative selling prices will be estimated based on vendor specific objective evidence (“VSOE”), third-party evidence (“TPE”), or management’s best estimate of selling price (“BESP”).

When VSOE or TPE is not available, 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.

Income taxes. We record deferred tax assets and liabilities based on temporary differences between the financial reporting and tax bases of assets and liabilities, applying enacted tax rates expected to be in effect for the fiscal year in which the differences are expected to reverse.  We reduce deferred tax assets by a valuation allowance when it is more likely than not that some or all of the deferred tax assets will not be realized.

Our provision for income taxes includes interest and penalties related to uncertain tax positions. We only recognize the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

Share based compensation.  We measure and recognize all share-based compensation, including restricted shares and share-based awards to employees, under the fair value method.  We measure the fair value of option awards using the Black-Scholes model, restricted shares using the grant date fair value of the stock and restricted shares with market-based conditions using a Monte-Carlo model.

Compensation is attributed to the periods of associated service and such expense is recognized on a straight-line basis over the vesting period of the awards. Forfeitures are estimated at the time of grant, with such estimate updated when the expected forfeiture rate changes.

In addition, the excess tax benefit from stock-option exercises—tax deductions in excess of compensation cost recognized—is classified as a financing activity.

Contingencies. We assess our exposures to loss contingencies and provide for an exposure if it is judged to be probable and reasonably estimable. If the actual loss from a contingency differs from our estimate, there could be a material impact on our results of operations or financial position. Operating expenses, including legal fees, associated with contingencies are expensed when incurred.

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Advertising costs. We expense advertising and promotional costs as incurred, which totaled approximately $4.7 million, $3.4 million and $3.0 million, for the fiscal years ended October 31, 2013, 2012 and 2011, respectively.

Research and development costs. We incur research and development costs to develop our new and next-generation products. Our products reach technological feasibility shortly before the products are released and therefore R&D costs are expensed as incurred. Employee related costs associated with product development are included in R&D costs.

Foreign currency translation. Our foreign subsidiaries’ asset and liability accounts are translated into U.S. dollar amounts at the exchange rate in effect at the balance sheet date. Foreign exchange translation adjustments are recorded as a separate component of shareholders’ equity. Revenue and expense accounts are translated at the average monthly exchange rates.  Inter-company trade balances, which we anticipate to settle in the foreseeable future, result in foreign currency gains and losses which are included in other expenses in our consolidated statements of operations.  Transaction gains and losses are included in other expense in our consolidated statements of operations.

Cash and cash equivalents. Cash and cash equivalents include short-term investments with maturities of three months or less from their date of purchase. We maintain cash balances that exceed federally insured limits; however, we have incurred no losses on such accounts. Cash and cash equivalents at our foreign subsidiaries were $39.9 million as of October 31, 2013 and $22.5 million as of October 31, 2012 for which we currently plan to reinvest.  We regularly evaluate our cash position in each territory and look for ways to efficiently deploy capital to markets where it is most needed.

Receivables, allowance for doubtful accounts and credit quality of financing receivables.  Accounts receivable is stated at face value less an allowance for doubtful accounts. We generally grant customers credit terms for periods of 30 to 90 days. Our investment in sales-type lease receivables is comprised of contracts. These contracts include extended payment terms granted to qualifying customers generally for periods from one to three years and are secured by the related products sold.

We evaluate the credit quality of the receivables and establish an allowance for doubtful accounts based primarily upon collection history, using a combination of factors including, but not limited to, customer collection experience, economic conditions, and the customer’s financial condition. In addition to specific account identification, we utilize historic collection experience, where applicable, to establish an allowance for doubtful accounts receivable. A specific reserve is allocated when collectability becomes uncertain due to events and circumstances, such as bankruptcy and tax or legal issues that cause an adverse change in a customer’s cash flows or financial condition. Accounts placed on reserve are evaluated for probability of collection, which is used to determine the amount of the specific reserve. All changes in the net carrying amount of our contracts are recorded as adjustments to bad debt expense. The allowance for doubtful accounts related to accounts receivable as of October 31, 2013 and October 31, 2012 was $0.4 million and $0.5 million, respectively. The allowance for doubtful accounts related to investment in sales-type leases and notes receivable as of October 31, 2013 and October 31, 2012 was approximately $0.02 million and $0.01 million, respectively.

Uncollectible contracts are written off when it is determined that there is minimal chance of any kind of recovery, such as a customer property closure, bankruptcy restructuring or finalization, or other conditions that severely impact a customer’s ability to repay amounts owed.

Fair value measurement. The Company applies fair value accounting for all financial instruments and non-financial instruments that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.   When determining the fair value measurements for financial instruments, which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

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This hierarchy requires us to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. For some products or in certain market conditions, observable inputs may not be available.

In accordance with the fair value accounting requirements, companies may choose to measure eligible financial instruments and certain other items at fair value. The Company has not elected the fair value option for any eligible financial instruments.

See Note 2 for further discussions of the valuations of certain of our financial instruments.

Recently issued accounting standards or updates — adopted

In the current fiscal year, we adopted an Accounting Standards Update (“ASU”) which requires other comprehensive income to be presented with net income in one continuous statement or in a separate statement consecutively following net income. We adopted the ASU as of November 1, 2012 and chose to present comprehensive income in a separate Consolidated Statement of Comprehensive Income.

Recently issued accounting standards or updates — not yet adopted

In March 2013, the Financial Accounting Standards Board (“FASB”) issued an ASU requiring the release of cumulative translation adjustment into net income when an entity either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a foreign subsidiary. This ASU will be effective prospectively for our fiscal 2015 first quarter and is not expected to have a material impact on our financial statements.

2. FINANCIAL INSTRUMENTS

Fair value disclosures of financial instruments. As discussed in Note 1, 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.  As of October 31, 2013 our investment in sales-type leases and notes receivable had an approximate 5.5% effective interest rate and an approximate 2 year average maturity.

As of October 31, 2012, there was no amount drawn under our Revolver.  The fair value of our Revolver as of October 31, 2013 has been calculated based on market borrowing rates available as of October 31, 2013 for debt with similar terms and maturities. The following table provides the fair value measurement information about the Company’s long-term debt as of October 31, 2013.

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3. RECEIVABLES AND INVESTMENTS IN SALES-TYPE LEASES

We maintain allowances for bad debts for estimated credit losses that result from the inability of our customers to make required payments. The allowances for bad debts are estimated based on historical experience and specific customer collection issues.

Sales-type leases are interest-bearing at fixed market interest rates, require monthly installment payments over periods ranging generally from 24 to 36 months and may contain bargain purchase options. Notes receivable include financing arrangements for sales of lifetime licenses. Amounts are interest-bearing at fixed market interest rates and require monthly installments ranging generally from 24 to 36 months.

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Future minimum lease payments (principal, deferred revenue and interest) to be received for both sales-type leases and notes receivable are as follows:

4. OTHER BALANCE SHEET DATA

The following provides additional disclosure for selected balance sheet accounts as of October 31:

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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.  Depreciation is recorded using the straight-line method over the estimated useful life or lease terms, if shorter, for leasehold improvements.  Depreciation attributable to manufacturing operations is included in cost of sales and service.  The remaining component of depreciation is included in selling, general and administrative expenses.  Depreciation expense was $19.4 million, $16.2 million and $15.1 million for fiscal 2013, 2012 and 2011, respectively.

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