<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 000-23124
ANCHOR GAMING
(Exact name of registrant as specified in its charter)
NEVADA 88-0304253
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
815 PILOT ROAD, SUITE G
LAS VEGAS, NEVADA
89119
(Address of principal executive offices)
(Zip Code)
(702) 896-7568
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
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
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Shares outstanding of each of the registrant's classes of common stock as of
October 29, 1996:
Class Outstanding as of October 29, 1996
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Common stock, $.01 par value 13,352,557
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ANCHOR GAMING
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
INDEX
Page No.
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Part I. Financial Information
Item 1. Consolidated Condensed Financial Statements
Consolidated Condensed Balance Sheets at
September 30, 1996 and June 30, 1996 3
Consolidated Condensed Statements of
Income for the three months ended
September 30, 1996 and 1995 4
Consolidated Condensed Statements of Cash
Flows for the three months ended September 30, 1996
and 1995 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. Other Information 10
Signatures 11
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PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ANCHOR GAMING
CONSOLIDATED CONDENSED SEPTEMBER 30, JUNE 30,
BALANCE SHEETS 1996 1996
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ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 80,592,956 $ 78,112,530
Accounts receivable, net 4,714,354 4,720,689
Current portion of notes receivable, net 656,802 881,173
Inventory 3,540,634 3,197,955
Prepaid expenses 1,547,929 1,739,263
Other current assets 305,516 300,761
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Total current assets 91,358,191 88,952,371
Property and equipment, net 68,705,184 57,776,237
Long-term notes receivable, net 580,021 311,856
Intangible assets, net 2,069,518 2,054,710
Deposits and other 14,084,979 13,216,623
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Total assets $ 176,797,893 $ 162,311,797
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion, long-term notes payable $ 100,000 $ 100,000
Accounts payable 4,797,951 4,574,213
Accrued salaries, wages and vacation pay 3,197,483 2,488,014
Income tax payable 3,338,653 281,886
Other current liabilities 3,906,601 3,530,130
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Total current liabilities 15,340,688 10,974,243
Long-term notes payable, principal stockholder 2,800,000 2,800,000
Long-term notes payable, net of current portion 825,000 850,000
Other long-term liabilities 671,393 707,318
Minority interest in consolidated subsidiary 776,651 672,955
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Total liabilities and minority interest in
consolidated subsidiary 20,413,732 16,004,516
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Stockholders' equity:
Common stock, $.01 par value, 25,000,000 shares
authorized; 13,539,700 issued and 13,348,932
outstanding at September 30, 1996, 13,474,150
issued and 13,283,382 outstanding at
June 30, 1996. 135,397 134,742
Additional paid-in capital 106,282,709 104,448,080
Treasury stock at cost, 163,789 shares (3,095,830) (3,095,830)
Retained earnings 53,061,885 44,820,289
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Total stockholders' equity 156,384,161 146,307,281
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Total liabilities and stockholders' equity $ 176,797,893 $ 62,311,797
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</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements
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ANCHOR GAMING
CONSOLIDATED CONDENSED THREE MONTHS ENDED SEPTEMBER 30,
STATEMENTS OF INCOME -------------------------------
1996 1995
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Revenues:
Casino operations $ 17,586,357 $ 16,301,511
Route operations 8,016,151 6,466,356
Proprietary games 9,212,611 4,696,431
Food and beverage 360,713 358,323
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Total revenues 35,175,832 27,822,621
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Costs and expenses:
Casino operations 6,939,265 6,691,629
Route operations 4,780,086 4,019,458
Proprietary games 3,074,148 3,015,171
Food and beverage 396,399 339,439
Selling, general and administrative 6,287,428 5,177,366
Depreciation and amortization 1,481,016 870,026
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Total costs and expenses 22,958,342 20,113,089
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Income from operations 12,217,490 7,709,532
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Other income (expense):
Interest income 1,011,373 400,120
Interest expense (97,107) (111,685)
Other income 84,932 64,327
Minority interest in earnings of consolidated
subsidiary (103,696) (60,938)
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Total other income (expense) 895,502 291,824
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Income before provision for income taxes 13,112,992 8,001,356
Income tax provision (4,871,396) (2,971,543)
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Net income $ 8,241,596 $ 5,029,813
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Weighted average common and common equivalent
shares outstanding 13,737,290 11,790,702
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Earnings per common and common equivalent share $ 0.60 $ 0.43
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The accompanying notes are an integral part of these
consolidated condensed financial statements
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<TABLE>
<CAPTION>
ANCHOR GAMING
CONSOLIDATED CONDENSED THREE MONTHS ENDED SEPTEMBER 30,
STATEMENTS OF CASH FLOWS ----------------------------------
1996 1995
<S> <C> <C>
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Net cash provided by operating activities $ 14,290,510 $ 8,750,474
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Cash flows from investing activities:
Acquisition and construction of property and equipment (12,409,962) (2,338,059)
Expenditures for intangible assets (109,786) -
Issuance of notes receivable (107,000) (35,000)
Principal reductions on notes receivable 63,206 230,131
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Net cash used in investing activities (12,563,542) (2,142,928)
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Cash flows from financing activities:
Net proceeds from sale of stock 778,458 1,644,450
Principal payments on loans (25,000)
Principal payments on loans from related parties - (2,390,937)
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Net cash provided by (used in) financing activities 753,458 (746,487)
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Net increase in cash and cash equivalents 2,480,426 5,861,059
Cash and cash equivalents, beginning of period 78,112,530 26,132,411
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Cash and cash equivalents, end of period $ 80,592,956 $ 31,993,470
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Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes $ 757,800 $ 900,000
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Interest $ 89,661 $ 115,544
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</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements
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<PAGE>
ANCHOR GAMING
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated condensed financial statements include the accounts of
Anchor Gaming and its subsidiaries ("the Company"), Anchor Coin, C.G.
Investments, Inc. ("CGI"), Colorado Grande Enterprises, Inc. ("Colorado Grande")
and D D Stud, Inc. ("DD Stud"), which conduct gaming operations in Nevada, and
in Black Hawk and Cripple Creek, Colorado (collectively the "Subsidiaries").
All significant intercompany accounts and transactions have been eliminated.
BASIS OF PRESENTATION
In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments necessary to present
fairly the results of its operations for the three-month periods ended
September 30, 1996 and 1995, its cash flows for the three-month period ended
September 30, 1996 and 1995 and its financial position at September 30, 1996.
These financial statements should be read in conjunction with the Company's
audited consolidated financial statements for the fiscal year ended June 30,
1996. The operating results and cash flows for the three months ended
September 30, 1996 are not necessarily indicative of the results that will be
achieved in future periods.
INVENTORY
Inventories consist of silver and silver tokens, parts for gaming machines,
and food and beverage items. Silver inventory of $1,441,306 and $1,092,671 at
September 30, 1996 and June 30, 1996, respectively, is classified as raw
material. The remainder of inventory is classified as finished goods. All
inventories are stated at the lower of cost (first-in, first-out) or market.
2. COMMITMENTS AND CONTINGENCIES
At September 30, 1996 the Company had entered into various purchase
agreements to purchase gaming equipment for approximately $9,500,000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Report on Form 10-Q contains certain forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
and other applicable securities laws. Such statements are subject to inherent
risks and uncertainties, and actual results could differ materially from those
anticipated by the forward-looking statements. These risks and uncertainties
include, among others, those set forth under "Risk Factors" in the Company's
Annual Report on Form 10-K for the year ended June 30, 1996.
OVERVIEW
The following table sets forth the percentage of Anchor's total revenues
attributable to casino operations, gaming machine route operations, proprietary
games operations and food and beverage operations during the three months ended
September 30, 1996 and 1995. The Company's newest proprietary game, Wheel of
Gold-TM- began generating revenue during the third quarter of fiscal 1996. The
Company's food and beverage revenues are derived primarily from its casino
operations and, to a lesser extent, from its route operations.
Three months ended
------------------
September 30,
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Sources of Revenues: 1996 1995
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Casino operations 50.0% 58.6%
Gaming machine route operations 22.8 23.2
Proprietary games operations 26.2 16.9
Food and beverage operations 1.0 1.3
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Total operations 100.0% 100.0%
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THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1995
REVENUES. Total revenues were $35.2 million for the first quarter of
fiscal 1997, which ended September 30, 1996, an increase of $7.4 million or
26.4% from $27.8 million for the first quarter of fiscal 1996.
Revenues from casino operations were $17.6 million for the first quarter
of fiscal 1997, an increase of $1.3 million or 7.9% from $16.3 million for
the first quarter of fiscal 1996. The increase is primarily due to increased
revenue at both of the Company's Colorado casinos.
Revenues from route operations were $8.0 million for the first quarter of
fiscal 1997, an increase of $1.5 million or 24.0% from $6.5 million for the
first quarter of fiscal 1996. Machines
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on route increased to 768 at September 30, 1996, from 647 at September 30, 1995,
while average machines on route during the first quarter of fiscal 1997 were 89
machines greater than the first quarter of fiscal 1996.
Revenues from proprietary games operations were $9.2 million for the first
quarter of fiscal 1997, an increase of $4.5 million or 96.2% from $4.7 million
for the first quarter of fiscal 1996. This increase is primarily due to revenues
generated from the Company's newest proprietary game, Wheel of Gold-TM-
introduced December 29, 1995.
Revenues from food and beverage operations were $361,000 for the first
quarter of fiscal 1997, substantially the same as the $358,000 for the first
quarter of fiscal 1996.
COSTS AND EXPENSES. Total costs and expenses were $23.0 million for the
first quarter of fiscal 1997, an increase of $2.9 million or 14.1% from $20.1
million for the first quarter of fiscal 1996.
Costs and expenses of casino operations were $6.9 million for the first
quarter of fiscal 1997, an increase of $248,000 or 3.7% from $6.7 million for
the first quarter of fiscal 1996. Casino costs and expenses as a percentage of
casino revenue decreased to 39.5% during the first quarter of fiscal 1997 from
41.0% during the first quarter of fiscal 1996.
Costs and expenses of route operations were $4.8 million for the first
quarter of fiscal 1997, an increase of $761,000 or 18.9% from $4.0 million for
the first quarter of fiscal 1996. Costs and expenses of route operations as a
percentage of route revenue decreased to 59.6% during the first quarter of
fiscal 1997 from 62.2% during the first quarter of fiscal 1996. The increase in
route costs and expenses was primarily due to increased location costs, related
to increased machines on route.
Costs and expenses of proprietary games operations were $3.1 million for
the first quarter of fiscal 1997, an increase of $59,000 or 2.0% from $3.0
million for the first quarter of fiscal 1996. Proprietary games costs and
expenses as a percentage of proprietary games revenues decreased to 33.4% during
the first quarter of fiscal 1997 from 64.2% during the first quarter of fiscal
1996. The decrease in proprietary games costs as a percentage of revenue is a
result of the Company's newest proprietary game Wheel of Gold-TM- which incurs
less costs and expenses as a percentage of revenue than the Company's other
proprietary games.
Costs and expenses of food and beverage were $396,000 for the first quarter
of fiscal 1997, an increase of $57,000 or 16.8% from $339,000 for the first
quarter of fiscal 1996. Food and beverage costs and expenses as a percentage of
food and beverage revenue increased to 109.9% during the first quarter of fiscal
1997 from 94.7% during fiscal 1996.
Selling, general and administrative ("SG&A") expenses were $6.3 million for
the first quarter of fiscal 1997, an increase of $1.1 million or 21.4% from
$5.2 million for the first quarter of fiscal 1996. SG&A expenses as a
percentage of total revenue decreased to 17.9% during the first
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quarter of fiscal 1997 from 18.6% during the first quarter of fiscal 1996. The
increase in SG&A expenses is primarily due to increased payroll, advertising,
and research and development costs.
Depreciation and amortization expense was $1.5 million for the first
quarter of fiscal 1997, an increase of $611,000 or 70.2% from $870,000 for the
first quarter of fiscal 1996. This increase is primarily due to increased
depreciation and amortization expense incurred in the Company's proprietary
games operations.
INCOME FROM OPERATIONS. As a result of the factors discussed above, income
from operations was $12.2 million for the first quarter of fiscal 1997, an
increase of $4.5 million or 58.5% from $7.7 million for the first quarter of
fiscal 1996. As a percentage of total revenues, income from operations
increased to 34.7% during the first quarter of fiscal 1997 from 27.7% during the
first quarter of fiscal 1996.
INTEREST INCOME. Interest income was $1.0 million for the first quarter of
fiscal 1997, an increase of $611,000 or 152.8% from $400,000 for the first
quarter of fiscal 1996. This increase is due to increased short-term
investments resulting from an increase in working capital generated from
operations as well as cash invested from the April 1996 Secondary Offering.
INTEREST EXPENSE. Interest expense was $97,000 for the first quarter of
fiscal 1997, a decrease of $15,000 or 13.1% from $112,000 for the first quarter
of fiscal 1996.
NET INCOME. As a result of the factors discussed above, net income was
$8.2 million for the first quarter of fiscal 1997, an increase of $3.2 million
or 63.9% from $5.0 million for the first quarter of fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
Anchor's principal sources of liquidity have been cash flow from
operations, the net proceeds from the Secondary Offering in April 1996, and the
IPO in February 1994. Net proceeds to the Company from the Secondary Offering
were $53.9 million, and net proceeds from the IPO were $34.1 million. Net cash
provided by operating activities was $14.3 million during the first quarter of
fiscal 1997 and $8.8 million during the first quarter of fiscal 1996. At
September 30, 1996, the Company had cash and cash equivalents of $80.6 million,
working capital of $76.0 million, and $20.0 million available under a $20.0
million revolving bank line of credit (the "Bank Revolver"), including $5.0
million of letter of credit capabilities available within the Bank Revolver.
During the first quarter of fiscal 1997, the Company spent $12.4
million on capital expenditures, primarily related to the purchase of gaming
devices for use in its proprietary games operations of approximately $10.0
million. In addition, the Company spent $1.3 million during the first quarter
of fiscal 1997 related to the planned development of a second casino in Black
Hawk, Colorado. Through September 30, 1996, the Company has spent $13.4 million
related to this planned development.
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The Company entered into the $20 million Bank Revolver in fiscal 1994,
which expires November 30, 1996. Management believes that the Company will be
able to extend or renew this Bank Revolver on terms no less favorable than those
of the current facility, although there can be no assurance that this will be
done. The Bank Revolver is subject to a 3/8% unused commitment fee and bears
interest at the prime rate of interest plus 1/4%, or LIBOR plus 2 1/4 %, at the
Company's option. The Company has pledged substantially all of its assets as
collateral under the terms of the Bank Revolver and has agreed to maintain
certain financial and non-financial covenants customary with lending
arrangements of this type. The Company has remained in compliance with the
covenants throughout the term of the credit facility. During fiscal 1996 the
Company did not use the Bank Revolver.
The Company believes its principal liquidity requirements will be the
funding of its planned second casino in Black Hawk, Colorado, estimated to be
completed during calendar 1998, and the purchase of additional proprietary
gaming machines, primarily Wheel of Gold. The Company believes that cash on
hand, cash flow from operations, and available credit under the Bank Revolver
will be sufficient to fund its currently planned capital projects and
operations.
The Company continually seeks opportunities to expand its gaming oriented
businesses in new and existing gaming jurisdictions. If successful in pursuing
another opportunity in any gaming oriented business and depending on the amount
of funding required, the Company may be required to obtain additional financing.
PART II. OTHER INFORMATION
Not Applicable
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized
ANCHOR GAMING
(Registrant)
/s/ Stanley E. Fulton
----------------------------------
Stanley E. Fulton
Chairman and
Chief Executive Officer
Date October 30, 1996 /s/ Salvatore T. DiMascio
------------------------ ----------------------------------
Salvatore T. DiMascio
Executive Vice President and
Chief Financial Officer
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<TABLE> <S> <C>
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ANCHOR
GAMING'S CONSOLIDATED CONDENSED BALANCE SHEETS AT SEPTEMBER 30, 1996 AND
JUNE 30, 1996 AND CONSOLIDATED CONDENSED STATEMENTS OF INCOME FOR THE THREE
MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 80,592,956
<SECURITIES> 0
<RECEIVABLES> 5,371,156
<ALLOWANCES> 0
<INVENTORY> 3,540,634
<CURRENT-ASSETS> 91,358,191
<PP&E> 68,705,184
<DEPRECIATION> 0
<TOTAL-ASSETS> 176,797,893
<CURRENT-LIABILITIES> 15,340,688
<BONDS> 5,073,043
0
0
<COMMON> 135,397
<OTHER-SE> 156,248,764
<TOTAL-LIABILITY-AND-EQUITY> 176,797,893
<SALES> 0
<TOTAL-REVENUES> 35,175,832
<CGS> 0
<TOTAL-COSTS> 15,189,898
<OTHER-EXPENSES> 6,775,835
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 97,107
<INCOME-PRETAX> 13,112,992
<INCOME-TAX> 4,871,396
<INCOME-CONTINUING> 8,241,596
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,241,596
<EPS-PRIMARY> .60
<EPS-DILUTED> 0
</TABLE>
