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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-23124
ANCHOR GAMING
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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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)
REGISTRANT'S TELEPHONE NUMBER: (702) 896-7568
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
(TITLE OF CLASS)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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: [ ]
The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant at September 17, 1996, based on the $67.50 per
share closing price for the Company's common stock on the Nasdaq National Market
was approximately $451,682,190.
The number of shares of the Registrant's Common Stock outstanding as of
September 17, 1996 was 13,348,932.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders are
incorporated by reference into Part II of this Form 10-K. Portions of the
Registrant's definitive Proxy Statement for its Annual Meeting of Stockholders
to be held on or about November 8, 1996 (to be filed) are incorporated by
reference into Part III of this Form 10-K.
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TABLE OF CONTENTS
ITEM PAGE
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PART I
1 Business....................................................... 1
2 Properties..................................................... 19
3 Legal Proceedings.............................................. 20
4 Submission of Matters to a Vote of Stockholders................ 20
PART II
5 Market for Registrant's Common Equity and Related Stockholder
Matters...................................................... 20
6 Selected Financial Data........................................ 21
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 21
8 Financial Statements and Supplementary Data.................... 21
9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..................................... 21
PART III
10 Directors and Executive Officers of the Registrant............. 22
11 Executive Compensation......................................... 22
12 Security Ownership of Certain Beneficial Owners and
Management................................................... 22
13 Certain Relationships and Related Transactions................. 22
PART IV
14 Exhibits, Financial Statement Schedules, and Reports on
Form 8-K..................................................... 22
(i)
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Part I
ITEM 1. BUSINESS.
GENERAL
Anchor Gaming, a Nevada corporation ("Anchor" or the
"Company"), is a diversified gaming company that seeks to capitalize on its
experience as an operator and developer of gaming machines and casinos by
developing gaming oriented businesses. Anchor operates two casinos in
Colorado, including the state's most profitable casino, develops and
distributes unique proprietary games, and operates one of the largest and
most profitable gaming machine routes in Nevada. References in this Annual
Report on Form 10-K to Anchor or the Company include subsidiaries unless the
context requires otherwise.
REORGANIZATION. The current structure of the Company is the
result of a reorganization (the "Reorganization") effected by the Company and
its current subsidiaries, which were previously controlled by the Company's
principal stockholder, Stanley E. Fulton, and his family--Anchor Coin,
Colorado Grande Enterprises, Inc., C.G. Investments, Inc., and D D Stud, Inc.
(the "Subsidiaries"). The reorganization was completed concurrently with the
closing of the Company's initial public offering in January 1994 (the "IPO").
Pursuant to the Reorganization, stockholders of the Subsidiaries exchanged
their capital stock for common stock of Anchor Gaming according to exchange
ratios based on the fair market value of the respective Subsidiary. The
Company then repurchased shares of its common stock from certain minority
stockholders of Colorado Grande Enterprises, Inc. Minority stockholders
unaffiliated with the Fulton family continue to own a 20% interest in
Colorado Grande Enterprises, while all other Subsidiaries are wholly owned by
the Company. In addition to the Reorganization, in connection with the IPO,
the Company also acquired Global Gaming Products, L.L.C. and Global Gaming
Distributors, Inc.'s rights to the game Silver Strike. Prior to the
acquisition, Stanley E. Fulton owned 50% of Global Gaming Products, L.L.C.
CASINOS
In Colorado, the Company operates two casinos, both of which
emphasize gaming machine play. Limited stakes gaming ($5.00 or less per bet)
was approved in Colorado in November 1990 in two historic gold mining areas
- - --Black Hawk/Central City and Cripple Creek. Black Hawk and Central City are
contiguous, located approximately 40 miles from Denver and ten miles from
Interstate 70. Cripple Creek is located approximately 45 miles from Colorado
Springs. The Company's Colorado Central Station Casino, which opened
December 25, 1993, is the highest revenue earning casino in the state of
Colorado. Casino operations were responsible for 55.9% of the Company's total
revenues for fiscal 1996. Casinos located in Black Hawk/Central City serve
primarily the residents of Denver and Boulder, Colorado and surrounding
communities. Casinos located in Cripple Creek serve primarily the residents
of Colorado Springs, Pueblo, and surrounding communities.
COLORADO CENTRAL STATION CASINO. Anchor Gaming opened the
Colorado Central Station Casino in Black Hawk, Colorado on December 25, 1993.
The Colorado Central Station Casino features
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623 gaming machines (compared to 602 at the same time a year ago), ten
blackjack tables, and nine poker tables. In response to high existing demand,
the casino plans to add during calendar 1996 an additional 3,000 square feet,
which will accommodate an additional 60-70 machines, an increase in capacity
of more than 10%. The Colorado Central Station Casino offers 500 valet
parking spaces to its customers.
The Colorado Central Station Casino was constructed
specifically for gaming activities and offers a gaming area using the maximum
square footage allowed under Colorado law, which limits the square footage of
a casino that may be used for gaming activities to 35% of the building and
50% of any one floor. The remaining available space in the casino building is
used for a restaurant, bar, and entertainment area, as well as for office
space. The Colorado Central Station Casino employs approximately 422 people
and by law is allowed to be open seven days a week from 8:00 a.m. to 2:00 a.m.
According to information on file with the Colorado Historic
Preservation Office, the Colorado Central Station Casino property is within
the Black Hawk Registered Historic District. The Colorado Central Station
Casino has received approval as meeting the historical guidelines for use as
a gaming establishment.
The Company has begun excavation for an estimated $60.0
million planned expansion of its operations in the Black Hawk/Central City
market that involves the construction of a casino/hotel adjacent and
connected to the existing Colorado Central Station Casino via an enclosed
walkway. Management believes that this planned expansion will allow the
Company to capitalize on its current market position to more effectively meet
existing demand, while attracting new customers to the market by providing a
more diverse gaming experience.
COLORADO GRANDE CASINO. The Company operates the Colorado
Grande Casino in Cripple Creek, Colorado through an 80% owned subsidiary.
The casino, which opened October 11, 1991, is located at one of the principal
intersections in Cripple Creek. The Colorado Grande Casino features 212
gaming machines, 44 adjacent parking spaces and a full service restaurant and
bar. The entire facility is leased by Anchor Gaming under a 15 year lease,
with 10 years remaining (with an option to renew for an additional 15 years),
which provides for monthly payments equal to the greater of 5% of adjusted
gross gaming revenues or a base amount, with an annual ceiling of $400,000.
The Colorado Grande Casino employs approximately 93 people and by law is
allowed to be open seven days a week from 8:00 a.m. to 2:00 a.m.
ROUTE OPERATIONS
Anchor's gaming machine route operations in Nevada comprise
693 gaming machines at 50 locations at June 30, 1996. The Company's gaming
machine route operations involve the installation, operation, and service of
gaming machines (primarily video poker machines) under space leases with
retail chains and under participation arrangements with local taverns and
other retailers, principally in the Las Vegas area. The Company's gaming
machine route operations represented 24.6% of the Company's total revenues
for the fiscal year ended June 30, 1996. The target market for the Company's
gaming machine
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routes in Nevada consists primarily of Nevada residents who frequent
locations in close proximity to their homes and/or workplace.
LOCATIONS AND LEASES. At June 30, 1996, of the Company's 693
gaming machines in Nevada, 618 were located in or near Las Vegas.
Anchor's agreements for its locations generally are in the
form of either written space lease agreements or revenue sharing contracts
and generally give Anchor the exclusive right to install gaming machines at
such locations. Two of the Company's gaming route agreements are space
leases with major retail chains that require payments of fixed monthly fees
based on the amount of space used or the number of gaming machines installed
at the location. The remainder of the Company's gaming route agreements are
participation arrangements, which provide for the payment to the location
owner of a percentage of revenues generated by Anchor's machines at such
location. A location owner is not permitted to receive a percentage of
revenues unless such owner is licensed by the Nevada Gaming Commission. See
"Business--Regulation--Nevada."
The Company's slot route operations at locations leased from
Smith's Food and Drug Centers, Inc. ("Smith's") accounted for more than 10%
of Anchor's total revenues for fiscal 1996. On February 27 1996, Anchor
extended its space lease agreement with Smith's, which was scheduled to
expire in the year 2005, for five additional years through the year 2010. In
exchange for Smith's agreement to the five year extension Anchor paid $5.0
million to Smith's. During fiscal year 1996, the Company amortized $537,160
of lease extension costs, and an additional $654,336 will be amortized during
each succeeding year through 2010. The agreement with Smith's provides for a
fixed monthly rental fee per store throughout the term of the agreement and
grants Anchor the exclusive right to install gaming machines at all Smith's
stores in Nevada, including stores opened in the future. As of June 30,
1996, the average remaining term of the Company's space lease agreements and
participation arrangements was more than five years, on a per-machine basis.
Anchor's space leases and participation arrangements generally
require Anchor to pay all installation, maintenance, and insurance expenses
related to its operations at each location. Applicable taxes are paid by
Anchor under space leases and are shared on the same basis as revenues under
participation arrangements. The leases generally provide that if Anchor
fails to pay the required rental or license fees or defaults in the
performance of any of its other obligations, the location operator can
terminate the lease. Anchor believes that it is not in default under any of
its present space leases or participation arrangements. Generally, in the
ordinary course of business, Anchor has lease and other security deposits,
prepaid rent, and advances held by the owners of chain stores and other
location operators.
SERVICES AND OPERATIONS. Anchor attempts to attract and
retain gaming machine patrons by offering an attractive selection of gaming
machines. Prior to installing machines at a location, Anchor studies the
market potential and customer base and determines the appropriate machine mix
for the location. Anchor believes that its patrons are discerning customers
who seek higher payouts and longer periods of play for their gaming dollars.
Accordingly, the Company's gaming machines provide players
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with payout rates that the Company believes are equal to or exceed the
average payouts provided by gaming machines in comparable locations, while
still providing the Company with stable cash flows. Progressive jackpots are
also offered at most of the Company's locations. In addition, Anchor
believes that interactive electronic games, such as video poker, are more
attractive to its patrons than simple, mechanical reel-type slot machines.
Virtually all of the gaming machines operated by the Company in Nevada are
video poker machines. Management also believes the Company distinguishes its
route operations from those of its competitors by offering machines with its
proprietary game Double Down Stud. Anchor does not allow competing gaming
route operators to use Double Down Stud on their routes.
In marketing its services to the owners of retail stores and
taverns, the Company also emphasizes quality service. The Company operates
and services its machines using its own employees, who routinely repair and
maintain the Company's gaming machines in order to improve reliability and
in-service time. Management believes that the Company's gaming machines and
related equipment are well maintained and in good working condition. In
addition to physical service of the gaming machines, employees of the Company
remove coins from the machines, refill machines that have exhausted their
supply of coins, and provide payment of jackpots in excess of machine limits.
Anchor Gaming also operates change booths at retail store locations with 15
gaming machines.
PROPRIETARY GAMES
GENERAL. Anchor develops proprietary games, which it markets
to casinos and uses in its own gaming operations. Such proprietary games are
developed primarily in-house, manufactured by major gaming companies, and
then modified by the Company. The Company initially developed proprietary
games as a complement to its own gaming machine operations. Since February
1993, however, the Company has been actively marketing its proprietary games
to unaffiliated casinos. Proprietary games operations represented 18.4% of
the Company's total revenues for fiscal 1996.
The Company's proprietary games may be played on gaming
machines or at gaming tables, depending on the particular game. One of the
Company's first internally developed proprietary games, Double Down Stud, is
distributed in the form of a "conversion kit," for the machine version or
"layout" for the table game version. Anchor places Double Down Stud in
unaffiliated casinos free of charge on a royalty basis.
Anchor acquired rights to the game Silver Strike, a slot
machine that pays out unique souvenir silver tokens sold by the Company, at
the time of the IPO. The Company places Silver Strike machines free of
charge in unaffiliated casinos in exchange for an agreement to purchase the
souvenir tokens exclusively from the Company under month-to-month contracts.
The Company introduced its Clear Winner slot machine in
the fourth quarter of fiscal 1995. The Clear Winner is a standard slot
machine remanufactured into a clear cabinet so that players can observe all
of its inner workings. Anchor places Clear Winner in unaffiliated casinos
free of charge in exchange for a royalty or revenue participation agreement.
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In fiscal 1996 the initial installations of the Wheel of Gold,
a slot machine which offers winning players the opportunity to activate a
three-dimensional "roulette" type wheel, took place. Each spin of the wheel
offers cash prizes currently ranging from $25 to $1,500. Anchor places the
Wheel of Gold in unaffiliated casinos free of charge in exchange for a
royalty, a per spin charge or revenue participation basis.
DEVELOPMENT. The Company incurs expenses in connection with
the ongoing development of its proprietary games. Company management is
involved in game development. The Company also engages an independent
consultant to assist in new games development.
DISTRIBUTION. The Company's proprietary games are distributed
primarily through direct sales efforts in which sales representatives
regularly call on casinos and other potential customers. Anchor's games are
generally placed in unaffiliated casinos, free of charge, in exchange for a
royalty, revenue participation or similar recurring short-term arrangements.
Anchor and International Game Technology (IGT) have entered into a Memorandum
of Understanding to form a strategic alliance between the two companies. In
particular, the Memorandum defines a business relationship under which Anchor
and IGT will cooperate in placing Anchor proprietary games, including
Anchor's Wheel of Gold game, on IGT's wide area progressive systems in the
United States and Canada. In addition, IGT shall have the rights to market
Anchor's proprietary games throughout the rest of the world.
INTELLECTUAL PROPERTY RIGHTS. Anchor has secured and
endeavors to secure, to the extent possible, exclusive rights in its games,
primarily through federal and foreign intellectual property rights, such as
patents, trademarks and copyrights. The United States Patent and Trademark
Office has issued four patents covering the Double Down Stud games in the
United States. These patents expire on March 31, 2009. The United States
Patent and Trademark Office has issued one patent covering innovations of the
Silver Strike game in the United States but there is no independent
protection of the game itself. This patent expires March 14, 2012. Anchor
has also been granted a U.S. patent on its Crazy Joker wild indicia concept,
which patent expires July 11, 2112. Anchor has pending patent applications in
the U.S. and select foreign countries related to the Wheel of Gold. In 1993,
the Company received a U.S. patent relating to the system it developed to
allow players at gaming devices to participate in a group game, such as
bingo, without leaving the gaming device they are playing. In order to
protect potential foreign sources of income, the Company has filed patent
applications and trademark applications in strategically selected foreign
countries. Foreign patent applications relating to Double Down Stud, Silver
Strike and Wheel of Gold have been filed in various foreign jurisdictions.
There can be no assurance that any of the pending U.S. or foreign patent or
trademark applications will issue as patents or trademark registrations,
respectively, that these games will be successfully licensed, or that any of
these rights will not be infringed or challenged by others.
Double Down Stud-Registered Trademark- and Silver
Strike-Registered Trademark- are registered trademarks, and Wheel of
Gold-TM-, Clear Winner-TM-, Players Choice 21-TM-, Draw Stud-TM-, Totem
Pole-TM-, Crazy Joker-TM-, Rock 'N' Reels-TM-, Colorado Central Station-TM-,
Colorado Grande-TM-, Fast Track Slot Club-TM-, and Maggie's Slot Club-TM- are
trademarks and/or service marks of Anchor Gaming. Applications to register
several of these marks are still be pending and there can be no assurance
that pending registrations will be issued, be opposed by a
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third party, or that third parties will not raise claims of prior use of one
or more of these marks whether pending or issued.
SUPPLIERS
Anchor has contracted with several manufacturers to develop
both Anchor's existing and future product requirements. To date, the Company
has purchased substantially all of the gaming machines used in its route
operations from IGT. In addition, IGT is currently the only gaming machine
manufacturer equipped to manufacture machines for the Company's proprietary
Double Down Stud game. Silver Strike machines are currently produced by
either IGT or Sigma Game, Inc. The primary components of Wheel of Gold are
purchased from Bally Gaming International, Inc. and Acres Gaming. An
inability to obtain quality gaming machines, production parts, and
replacement parts on reasonable terms or on a timely basis could have an
adverse effect on Anchor, and, in particular, failure of suppliers to deliver
sufficient quantities of machines and components to meet demand for the Wheel
of Gold machine could adversely affect growth prospects for Wheel of Gold.
COMPETITION
Anchor is subject to intense competition in all of its
markets, and management believes that national, regional, state, and local
competition in the gaming industry in general will be extremely high during
the foreseeable future, as gaming activities continue to expand in both
traditional and new gaming jurisdictions. In addition, many of the Company's
competitors have greater financial resources than the Company.
CASINOS. Intense competition characterizes the Black
Hawk/Central City and Cripple Creek markets. A number of Colorado casinos
have ceased operations and others have filed for protection under Chapter 11
of the Bankruptcy Code. Other casinos have closed temporarily or reduced
their number of employees, and many casinos may not be operating profitably.
Nevada Gold & Casinos Inc. announced on March 12, 1996 that it had signed an
operating agreement finalizing plans for a joint venture with an affiliate of
Caesars World Gaming Development Corporation to jointly develop a
casino/hotel in Black Hawk at an estimated cost of $90.0 million. The
owner/operator of the Gilpin Hotel Casino has also announced plans to
undertake a major casino/hotel development in Black Hawk. From time to time
other casino companies have publicly expressed an interest in pursuing
development or expansion in the Black Hawk/Central City market. It appears
that national, regional, state, and local competition for the casino gaming
market in general will be extremely high during the foreseeable future, as
casino gaming activities expand in traditional gaming states and in new
jurisdictions, a number of which have adopted or are considering gaming
legislation. In addition, passage of the Indian Gaming Regulatory Act in
1988 has led to rapid increases in Native American gaming operations, and the
Company's two Colorado casinos may compete for customers with casinos located
on Indian reservations in far southwestern Colorado. The Company expects
many competitors to enter such new jurisdictions that authorize gaming, some
of whom may have greater financial and other resources than the Company.
Such proliferation of gaming activities could significantly and adversely
affect the Company's business. In particular, the legalization of casino
gaming in or near any metropolitan area, such as Denver, Colorado, from which
the Company draws
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customers would have a material adverse effect on the Company's business.
The Company believes, however, that proliferation of gaming activities into
new jurisdictions presents an opportunity for it to expand its proprietary
games operations.
Colorado law requires local voter approval for any expansion
of limited gaming. State and local public initiatives regarding limited
gaming in Colorado are being actively pursued by many persons. Several
cities within Colorado have active citizens' lobbies and were able to place
limited gaming initiatives on the November 1994 statewide ballot. These
initiatives failed by substantial margins. An initiative to permit limited
gaming in Trinidad, Colorado, located approximately 250 miles south of Black
Hawk, Colorado, on the New Mexico border has been placed on the November 1996
ballot. Future initiatives, if passed, could significantly increase the
competition for gaming customers, thereby adversely affecting Anchor's
current business activities. In addition, Anchor's casinos in Colorado will
compete with casinos in other parts of the United States, as legalized
gambling continues to proliferate.
PROPRIETARY GAMES. Manufacturers and producers of table and
video games and slot machines similar to those of Anchor Gaming compete
directly with the Company for the limited gaming spaces available at
locations offering gaming activities. Management believes that the primary
bases for competition in the casino game market are price and potential
profit to gaming location operators that install the games. The perceived
popularity of games with casino patrons as well as the economics of the game
are, management believes, factors considered by potential casino customers.
The popularity of any of the Company's games may decline over time as
consumer preferences change or as new, competing games are introduced.
Competitors in the game industry include manufacturers of gaming devices,
other companies marketing gaming products and conversion kits, as well as
established public domain games.
ROUTE OPERATIONS. Gaming machines and gaming of all types are
available in Nevada in casinos and in restricted gaming locations similar to
those in which the Company operates gaming machines, and all of these gaming
establishments compete directly or indirectly with Anchor's route
operations. In addition, Anchor is subject to substantial competition for the
operation of gaming machines in approved locations from numerous small gaming
machine route operators and some large operators, located principally in Las
Vegas and Reno, Nevada, and their surrounding areas. Some of the Company's
competitors manufacture gaming machines. The principal methods of
competition for gaming machine locations are the lease, sublease, license, or
revenue sharing terms, the service provided by the route operator, the
reputation of the route operator, and the financial strength of the route
operator. As existing space lease and participation arrangements expire,
competition for renewals can be expected to increase the amounts payable to
location owners as compared to amounts payable under existing agreements.
SECURITY
Anchor's casino and gaming machine route operations generate,
and require the Company to maintain, a large supply of available cash. In
order to mitigate the risks of loss associated with maintaining such a
supply, the Company utilizes strict internal accounting and custodial
controls on receipts and disbursements. There can be no assurance, however,
that the Company's precautions and
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internal controls will provide security for its employees, or prevent cash
shortages resulting from employee errors and from theft.
EMPLOYEES
As of August 18, 1996, Anchor employed approximately 796
persons, the substantial majority of whom are nonmanagement personnel. Of
this total, approximately 515 people work at the Colorado Central Station
Casino and the Colorado Grande Casino. The balance of the Company's
nonmanagement employees is involved in route and proprietary games
operations. None of Anchor's employees are covered by a collective
bargaining agreement, and Anchor believes that it has satisfactory employee
relations.
SEASONALITY
The Company's operations as a whole are not subject to
significant seasonal variations. However, in general, the highest levels of
business activity at its Colorado casinos occurs during the tourist season
from July to October of each year. In addition, operations at the Colorado
casinos during the winter months could be significantly affected by weather
and road conditions in Colorado. The Company's proprietary games operations
typically have their highest levels of business during the summer tourist
season when its casino customers experience heavier tourist traffic.
REGULATION
NEVADA. The manufacture and distribution of gaming devices,
and the ownership and operation of gaming machine routes in Nevada are
subject to: (i) the Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, the "Nevada Act"); and (ii) various local
regulations. Generally, gaming activities may not be conducted in Nevada
unless licenses are obtained from the Nevada Gaming Commission (the "Nevada
Commission") and appropriate county and city licensing agencies. The Nevada
Commission, the Nevada State Gaming Control Board (the "Nevada Board"), and
the various county and city licensing agencies are collectively referred to
as the "Nevada Gaming Authorities."
The laws, regulations, and supervisory procedures of the
Nevada Gaming Authorities are based upon declarations of public policy that
are concerned with, among other things: (i) the prevention of unsavory or
unsuitable persons from having a direct or indirect involvement with gaming
at any time or in any capacity; (ii) the establishment and maintenance of
responsible accounting practices and procedures; (iii) the maintenance of
effective controls over the financial practices of licensees, including the
establishment of minimum procedures for internal fiscal affairs and the
safeguarding of assets and revenues, providing reliable record keeping, and
requiring the filing of periodic reports with the Nevada Gaming Authorities;
(iv) the prevention of cheating and fraudulent practices; and (v) providing a
source of state and local revenues through taxation and licensing fees.
Change in such laws, regulations, and procedures could have an adverse effect
on Anchor.
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Anchor Coin, which is the Company's subsidiary engaged in the
distribution of gaming devices and route operations, is licensed by the
Nevada Gaming Authorities. Anchor Coin is also licensed as a manufacturer to
enable it to develop its proprietary games. Anchor Coin's gaming licenses
require the periodic payment of fees and taxes and are not transferable.
Anchor is registered by the Nevada Commission as a publicly traded
corporation ("Registered Corporation") and, as such, is required periodically
to submit detailed financial and operating reports to the Nevada Commission
and furnish any other information that the Nevada Commission may require. No
person may become a stockholder of, or receive any percentage of profits
from, Anchor Coin without first obtaining licenses and approvals from the
Nevada Gaming Authorities. The Company and Anchor Coin have obtained from
the Nevada Gaming Authorities the various registrations, approvals, permits,
and licenses required in order to engage in gaming activities in Nevada.
Anchor Coin's operator's license enables it to operate gaming
machines on premises owned by others. At locations with 15 or fewer gaming
machines, the operation is considered to be a "restricted" gaming locations.
Locations with more than 15 gaming machines are considered to be
"nonrestricted" gaming locations. Only one of the Company's route locations
is a nonrestricted location. The nonrestricted regulatory requirements are
reduced to some extent because no more than 35 gaming machines, and no table
games, are operated at this location. Slot machines operated at restricted
and nonrestricted locations are subject to various fixed fees and per-machine
taxes levied on a quarterly and annual basis by the Nevada Gaming
Authorities. Restricted locations with one to five gaming machines must pay
a quarterly fee of $61 per machine, and restricted locations with six to 15
machines must pay a fixed quarterly fee of $305, plus $106 per machine.
Nonrestricted locations are subject to a tax on their gross revenues (the
difference between amounts wagered by casino patrons and payments to casino
patrons) that ranges from 3.0% to 6.25%. In its space lease agreements with
retail chains, Anchor has agreed to pay all taxes and fees relating to the
operation of gaming machines, and in its participation arrangements, taxes
and fees are typically shared on the same basis as revenues. Significant
increases in the fixed fees or taxes currently levied per machine or the tax
currently levied on gross revenues could have a material adverse effect on
the Company.
The Nevada Gaming Authorities may investigate any
individual who has a material relationship to, or material involvement with,
the Company or Anchor Coin in order to determine whether such individual is
suitable or should be licensed as a business associate of a gaming licensee.
Officers, directors, and certain key employees of Anchor Coin must file
applications with the Nevada Gaming Authorities and are required to be
licensed by the Nevada Gaming Authorities. Officers, directors, and key
employees of the Company who are actively and directly involved in the gaming
activities of Anchor Coin may be required to be licensed or found suitable by
the Nevada Gaming Authorities. The Nevada Gaming Authorities may deny an
application for licensing or a finding of suitability for any cause they deem
reasonable. A finding of suitability is comparable to licensing, and both
require submission of detailed personal and financial information followed by
a thorough investigation. The applicant for licensing or a finding of
suitability must pay all the costs of the investigation. Changes in licensed
positions must be reported to the Nevada Gaming Authorities and in addition
to their authority to deny an application for a finding of suitability or
licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a
change in a corporate position.
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If the Nevada Gaming Authorities were to find an officer,
director, or key employee unsuitable for licensing or to have a continuing to
have a relationship with the Company or Anchor Coin, the companies involved
would have to sever all relationships with such person. In addition, the
Nevada Commission may require the Company or Anchor Coin to terminate the
employment of any person who refuses to file appropriate applications.
Determinations of suitability or of questions pertaining to licensing are not
subject to judicial review in Nevada.
The Company and Anchor Coin are required to submit detailed
financial and operating reports to the Nevada Commission. Substantially all
material loans, leases, sales of securities, and similar financing
transactions by the Company and Anchor Coin must be reported to or approved
by the Nevada Commission and/or Nevada Board.
If it was determined that the Nevada Act was violated by
Anchor Coin, the gaming licenses it holds could be limited, conditioned,
suspended, or revoked, subject to compliance with certain statutory and
regulatory procedures. In addition, Anchor Coin, the Company, and the persons
involved could be subject to substantial fines for each separate violation of
the Nevada Act at the discretion of the Nevada Commission. Further, a
supervisor could be appointed by the Nevada Commission to operate the
Company's nonrestricted locations, and, under certain circumstances, earnings
generated during the supervisor's appointment (except for the reasonable
rental value of the Company's gaming property) could be forfeited to the
state of Nevada. Limitation, conditioning, or suspension of any gaming
license or the appointment of a supervisor could (and revocation of any
gaming license would) materially adversely affect Anchor.
Any beneficial holder of the Company's voting securities,
regardless of the number of shares owned, may be required to file an
application, be investigated, and have his or her suitability as a beneficial
holder of the Company's voting securities determined if the Nevada Commission
has reason to believe that such ownership would otherwise be inconsistent
with the declared policies of the state of Nevada. The applicant must pay
all costs of investigation incurred by the Nevada Gaming Authorities in
conducting any such investigation.
The Nevada Act requires any person who acquires more than five
percent of the Company's voting securities to report the acquisition to the
Nevada Commission. The Nevada Act requires that beneficial owners of more
than 10% of the Company's voting securities apply to the Nevada Commission
for a finding of suitability within thirty days after the Chairman of the
Nevada Board mails a written notice requiring such filing. Under certain
circumstances, an "institutional investor," as defined in the Nevada Act,
that acquires more than 10% but not more than 15% of the Company's voting
securities, may apply to the Nevada Commission for a waiver of such finding
of suitability if such institutional investor holds the voting securities for
investment purposes only. An institutional investor will not be deemed to
hold voting securities for investment purposes unless 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 the members of the board of
directors of the Company, any change in the Company's corporate charter,
bylaws, management, policies, or operations of the Company or any of its
gaming affiliates, or any other action which the Nevada Commission finds to
be inconsistent with
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holding the Company's voting securities for investment purposes only.
Activities that are not deemed to be inconsistent with holding voting
securities for investment purposes only include: (i) voting on all matters
voted on by stockholders; (ii) making financial and other inquiries of
management of the type normally made by securities analysts for informational
purposes and not to cause a change in its management, policies, or
operations; and (iii) such other activities as the Nevada Commission may
determine to be consistent with such investment intent. If the beneficial
holder of voting securities that must be found suitable is a corporation,
partnership, or trust, it must submit detailed business and financial
information including a list of beneficial owners. The applicant is required
to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of
suitability or a license within thirty days after being ordered to do so by
the Nevada Commission or the Chairman of the Nevada Board, may be found
unsuitable. The same restrictions apply to a record owner if the record
owner, after request, fails to identify the beneficial owner. Any
stockholder found unsuitable and who holds, directly or indirectly, any
beneficial ownership of the common stock of a Registered Corporation beyond
such period of time as may be prescribed by the Nevada Commission may be
guilty of a criminal offense. The Company is subject to disciplinary action
if, after it receives notice that a person is unsuitable to be a stockholder
or to have any other relationship with the Company or Anchor Coin, the
Company (i) pays that person any dividend or interest upon voting securities
of the Company, (ii) allows that person to exercise, directly or indirectly,
any voting right conferred through securities held by that person, (iii) pays
remuneration in any form to that person for services rendered or otherwise,
or (iv) fails to pursue all lawful efforts to require such unsuitable person
to relinquish his or her voting securities for cash at fair market value.
Additionally, the Clark County Nevada Liquor and Gaming Licensing Board has
taken the position that it has the authority to approve all persons owning or
controlling the stock of any corporation controlling a gaming license.
The Nevada Commission may, in its discretion, require the
holder of any debt security of a Registered Corporation to file applications,
be investigated, and found suitable to own the debt security of a Registered
Corporation. If the Nevada Commission determines that a person is unsuitable
to own such security, then pursuant to the Nevada Act, the Registered
Corporation can be sanctioned, including the loss of its approvals, if
without the prior approval of the Nevada Commission, it (i) pays to the
unsuitable person any dividend, interest, or any distribution whatsoever;
(ii) recognizes any voting right by such unsuitable person in connection with
such securities; (iii) pays the unsuitable person remuneration in any form;
or (iv) makes any payment to the unsuitable person by way of principal,
redemption, conversion, exchange, liquidation, or similar transaction.
The Company is required to maintain a current stock ledger in
Nevada that may be examined by the Nevada Gaming Authorities at any time. If
any securities are held in trust by an agent or by a nominee, the record
holder may be required to disclose the identity of the beneficial owner to
the Nevada Gaming Authorities. A failure to make such disclosure may be
grounds for finding the record holder unsuitable. The Company is also
required to render maximum assistance in determining the identity of the
beneficial owner. The Nevada Commission has the power to require the
Company's stock certificates to bear a legend indicating that such securities
are subject to the Nevada Act. However, to date, the Nevada Commission has
not imposed such a requirement on the Company.
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The Company may not make a public offering of any securities
without the prior approval of the Nevada Commission if the securities or the
proceeds therefrom are intended to be used to construct, acquire, or finance
gaming facilities in Nevada, or to retire or extend obligations incurred for
such purposes. Such approval does not constitute a finding, recommendation,
or approval by the Nevada Commission or the Nevada Board as to the accuracy
or adequacy of the prospectus or the investment merits of the securities.
Any representation to the contrary is unlawful.
Changes in control of the Company through merger,
consolidation, stock or asset acquisitions, management or consulting
agreements, or any act or conduct by a person whereby such person obtains
control, may not occur without the prior approval of the Nevada Commission.
Entities seeking to acquire control of a Registered Corporation must satisfy
the Nevada Board and the Nevada Commission concerning a variety of stringent
standards prior to assuming control of such Registered Corporation. The
Nevada Commission may also require controlling stockholders, officers,
directors, and other persons having a material relationship or involvement
with the entity proposing to acquire control, to be investigated and licensed
as part of the approval process of the transaction.
The Nevada legislature has declared that some corporate
acquisitions opposed by management, repurchases of voting securities and
corporate defense tactics affecting Nevada gaming licensees, and Registered
Corporations that are affiliated with those operations, may be injurious to
stable and productive corporate gaming. The Nevada Commission has
established a regulatory scheme to ameliorate the potentially adverse effects
of these business practices upon Nevada's gaming industry and to further
Nevada's policy to: (i) assure the financial stability of corporate gaming
operators and their affiliates; (ii) preserve the beneficial aspects of
conducting business in the corporate form; and (iii) promote a neutral
environment for the orderly governance of corporate affairs. Approvals are,
in certain circumstances, required from the Nevada Commission before the
Company can make exceptional repurchases of voting securities above the
current market price thereof and before a corporate acquisition opposed by
management can be consummated. The Nevada Act also requires prior approval
of a plan of recapitalization proposed by the Company's board of directors in
response to a tender offer made directly to the Registered Corporation's
stockholders for the purpose of acquiring control of the Registered
Corporation.
Any person who is licensed, required to be licensed,
registered, required to be registered, or is under common control with such
persons (collectively, "Licensees"), and who proposes to become involved in a
gaming venture outside of Nevada, is required to deposit with the Nevada
Board, and thereafter maintain, a revolving fund in the amount of $10,000 to
pay the expenses of investigation of the Nevada Board of the Licensees'
participation in such foreign gaming. The revolving fund is subject to
increase or decrease in the discretion of the Nevada Commission. Thereafter,
Licensees are also required to comply with certain reporting requirements
imposed by the Nevada Act. Licensees are also subject to disciplinary action
by the Nevada Commission if they knowingly violate any laws of the foreign
jurisdiction pertaining to the foreign gaming operation, fail to conduct the
foreign gaming operation in accordance with the standards of honesty and
integrity required of Nevada gaming operations, engage in activities that are
harmful to the state of Nevada or its ability to collect gaming taxes and
fees, or employ
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a person in the foreign operation who has been denied a license or a finding
of suitability in Nevada on the ground of personal unsuitability.
The placement and number of gaming machines that may be
operated in various locations are subject to limitation and control by local
city and county laws and ordinances. Acting through their zoning powers and
their powers to regulate gaming, local government entities determine the
number of gaming machines that may be operated at non-casino locations and
the types of locations where gaming operations may be conducted.
Accordingly, changes in such local zoning laws and ordinances could have a
material adverse effect on Anchor.
COLORADO. The ownership and operation of gaming facilities in
Colorado are subject to extensive state and local regulation. No gaming may
be conducted in Colorado unless licenses are obtained from the Colorado
Limited Gaming Control Commission (the "Colorado Commission"). In addition,
the State of Colorado created the Division of Gaming (the "Colorado
Division") within its Department of Revenue to license, implement, regulate,
and supervise the conduct of limited stakes gaming. The Director (the
"Colorado Director") of the Colorado Division, under the supervision of the
Colorado Commission, has been granted broad powers to ensure compliance with
the law and regulations. The Colorado Commission, the Colorado Division, the
Colorado Director, and city authorities in Black Hawk, Central City, and
Cripple Creek that have responsibility for regulation of gaming are
collectively referred to as the "Colorado Gaming Authorities."
The laws, regulations, and supervisory procedures of the
Colorado Gaming Authorities seek to maintain public confidence and trust that
licensed limited gaming is conducted honestly and competitively, that the
rights of the creditors of licensees are protected, and that gaming is free
from criminal and corruptive elements. It is the stated policy of the
Colorado Gaming Authorities that public confidence and trust can be
maintained only by strict regulation of all persons, locations, practices,
associations, and activities related to the operation of licensed gaming
establishments and the manufacture or distribution of gaming devices and
equipment.
The Colorado Commission is empowered to issue five types of
gaming and gaming related licenses. Anchor's casinos in Colorado each
require a retail gaming license, which must be renewed each year, and the
Colorado Division has broad discretion to revoke, suspend, condition, limit,
or restrict a licensee at any time. Anchor will be required to obtain a
retail gaming license in conjunction with the Colorado Expansion. No person
or entity can have an ownership interest in more than three retail gaming and
operators licenses. Accordingly, once the Colorado Expansion is completed,
Anchor will be foreclosed from acquiring more casinos in Colorado unless it
disposes of one of its then existing casinos. The Colorado Grande Casino and
the Colorado Central Station Casino have each obtained the required retail
gaming and operators licenses.
In addition to retail gaming licenses for its casinos, all of
Anchor's casino employees involved in gaming activities must apply for and
receive a support gaming license prior to commencing employment. "Key"
employees, which are defined as any executive, employee, or agent of a
licensee having the power to exercise a significant influence over decisions
concerning any part of the operations
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of any licensee, must obtain key licenses. At least one key license holder
must be on the premises of each casino at all times. Anchor pays the cost of
obtaining and maintaining key licenses. All licenses are revocable,
nontransferable, and valid only for the particular location initially
authorized, except that support and key employee licenses move with the
approved individual and are not location specific.
Any person or group of related persons that acquires
beneficial ownership of between 5.0% and 9.99% of the outstanding Common
Stock must report the acquisition to the Colorado Commission within ten days
of acquiring such interest and may be required to provide additional
information to the Colorado Commission and be found suitable. Any person or
group of related persons that acquires beneficial ownership of 10% (or, with
respect to institutional investors, 15%) or more of the outstanding Common
Stock must apply to the Colorado Commission within 45 days after acquiring
such interest and submit to investigation for suitability by the Colorado
Commission. Certain qualifying institutional investors, at the Colorado
Commission's discretion, may acquire up to 15% ownership before a finding of
suitability is required if such investors provide certain information to the
Colorado Commission regarding investment intent and other matters. In order
to be found suitable, a stockholder must be a person of good moral character,
honesty, integrity, and, in general terms, must be free from previous
criminal or unsavory convictions or similar acts. The Colorado Commission may
require substantial information in connection with a suitability
investigation, including personal background and financial information,
source of funding information, and a sworn statement that such person or
entity is not holding the Common Stock for any other party, and also may
require fingerprints. Until a finding of suitability occurs for a
stockholder who is undergoing a suitability investigation, Anchor cannot pay
any dividends to such stockholder nor may the stockholder exercise any voting
rights with respect to the Common Stock. A stockholder that is found to be
unsuitable must transfer its Common Stock to a suitable person within 60 days
after the finding of unsuitability. Otherwise, Anchor may offer such person
the lesser of the cash equivalent of such person's investment in the common
stock of Anchor or the current market price of the Common Stock as of the
date of the finding of unsuitability, and the stockholder will be required to
sell his or her Common Stock to Anchor. Anchor's Articles of Incorporation
include a statement that all transfers of voting securities are subject to
the regulations of the Colorado Commission and each other regulatory body to
which the Company's activities are subject and detail the possibility of a
repurchase if a stockholder is found unsuitable.
The Colorado Commission has adopted comprehensive rules and
regulations that require Anchor to maintain adequate books and records and
prescribe minimum operating, security, and payoff procedures. Regulated
operating procedures include hours of operation and rules of play. Rules
regarding gaming, cheating, and fraudulent practices have also been adopted,
which Anchor is obligated to police and enforce. Upon request, Anchor must
submit copies of all written gaming contracts and summaries of all oral
gaming contracts to which it is a party or intends to become a party. Anchor
and its subsidiaries must also promptly inform the Colorado Commission of any
change in their officers or directors and any such new officer or director
will be subject to possible investigation prior to approval. Further, if any
casino employee possessing a support license changes employment, is
terminated, or resigns, Anchor must notify the Colorado Director.
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Anchor may not make a public offering of its securities
without notifying the Colorado Commission. The notification must occur
within 10 business days after the initial filing of a registration statement
with the Securities and Exchange Commission or, if the offering will not be
registered with the Securities and Exchange Commission, 10 days prior to the
public use or distribution of any offering document. The notification
procedures apply to any offering by Anchor where the proceeds will be used or
intended for use (i) in constructing gaming facilities; (ii) in financing the
operation of gaming facilities by any licensee; (iii) in acquiring any direct
or indirect interest in Colorado gaming facilities; or (iv) in retiring or
extending obligations incurred for any of the above purposes. The
notification must disclose, among other things, a description of the
securities to be offered, the proposed terms of the offering, its anticipated
gross and net proceeds, and the use of the proceeds.
The sale of alcoholic beverages by Anchor's casinos is subject
to licensing, control, and regulation by the applicable state and local
authorities. All alcoholic beverages licenses are revocable and are not
transferable. The agencies involved have full power to limit, condition,
suspend, or revoke any such license, and any such disciplinary action could
(and revocation would) have a material adverse affect on Anchor.
The State of Colorado has enacted an annual gross gaming
revenue tax (gross gaming revenue being defined generally as the total amount
wagered minus the total amount paid out in prizes) of 2% of the first $2.0
million of gross gaming revenues, 8.0% of the second $2.0 million, 15% of the
next $1.0 million, and 18% of amounts in excess of $5.0 million. Prior to
October 1, 1994, the tax on gross gaming revenue was 2% of the first $1.0
million, 8% of the second $1.0 million, 15% of the third $1.0 million and 18%
of amounts in excess of $3.0 million. Effective October 1 of each year, the
Colorado Commission establishes the gross gaming revenue tax for the
following 12 months. Under the Colorado Constitution, the Colorado Commission
is authorized to increase the gaming tax rate to as much as 40%. A recent
tax limitation amendment to the Colorado Constitution, however, provides that
neither the State of Colorado nor any local government may increase a tax
rate without an affirmative vote of the public; therefore, a question exists
regarding the Colorado Commission's ability under the Colorado Constitution
to increase the state gaming tax above 18% without such a vote.
In addition, a "device fee" is required for each gaming
device (i.e., each gaming machine and each gaming table). The State of
Colorado currently imposes an annual fee of $75 per device (reduced from $100
effective October 1, 1994), and Black Hawk and Cripple Creek currently impose
annual fees per device of $750 and $1,200, respectively. Black Hawk and
Cripple Creek also impose liquor licensing fees, restaurant fees, and parking
impact fees. Further, Anchor has paid and in the future may be required to
pay local parking and other municipal "impact fees" based on the square
footage of its facilities. Significant increases in the applicable taxes or
fees, or the imposition of new taxes or fees, could have a material adverse
effect on Anchor, and it is not unreasonable to expect that such taxes or
fees could be increased or new taxes or fees imposed.
OTHER JURISDICTIONS. The Federal Gambling Devices Act of 1962
(the "Federal Act") makes it unlawful, in general, for a person to
manufacture, deliver, or receive gaming machines, gaming machine type
devices, and components across state lines or to operate gaming machines
unless that person has first
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registered with the Attorney General of the United States. The Federal Act
does not apply to the proprietary table games Double Down Stud and Players
Choice 21 but does apply to Double Down Stud, Silver Strike, Clear Winner,
and Wheel of Gold gaming machines. Anchor has registered and must renew its
registration annually. In addition, various record keeping and equipment
identification requirements are imposed by the Federal Act. Violation of the
Federal Act may result in seizure and forfeiture of the equipment, as well as
other penalties.
Any expansion of Anchor's gaming activities in Nevada and
Colorado may require, and the Colorado Casino Expansion and any expansion
into other jurisdictions would require additional approvals, licenses, and
permits from various gaming authorities. Anchor is also licensed in several
gaming jurisdictions as a distributor or manufacturer of gaming machines.
These jurisdictions exert substantial regulatory controls over the Company
and may impose restrictions on ownership of the Company's securities and
require findings of suitability of individuals associated with the Company.
Each of the Company's games must be approved and licensed in each
jurisdiction in which it is played. Obtaining required approvals and
licenses can be time consuming and costly and there can be no assurance of
success. In addition, there can be no assurance that regulations adopted or
taxes imposed by other states will permit profitable operations by the
Company.
ENVIRONMENTAL. The Colorado Central Station Casino is located
in an area that has been designated by the Environmental Protection Agency
(the "EPA") as a superfund site on the National Priorities List, known as the
Central City-Clear Creek Superfund Site (the "Site"), as a result of
contamination from historic mining activity in the area. The EPA is entitled
to proceed against owners and operators of properties located within the Site
for remediation and response costs associated with their properties and with
the entire Site. The Colorado Central Station Casino is located within the
drainage basin of North Clear Creek and is therefore subjected to potentially
contaminated surface and ground water from upstream mining-related sources.
Soil and ground water samples on the Site indicate that several contaminants
exist in concentrations exceeding drinking water standards. Records relating
to historical uses of the Site are uncertain as to whether mining actually
occurred below the Company's property. Records do indicate that an ore
loading dock for a railroad depot was once located on an adjacent property,
and railroad tracts were present on the Company's property. Management is
not aware of any environmental issues associated with these activities.
Before the time of the IPO, the Company entered into an administrative
consent order with the EPA pursuant to which the Company agreed to pipe
mine-discharge water across the Company's property (the Company is not
required to treat this water), allowing the Company to dewater a wetlands
area on the northeast corner of the site, and requiring the Company to
recreate the wetlands in an alternative location. The Company deposited a
total of $250,000 into escrow with the EPA to cover the estimated costs of
this activity. Through August 1995, the EPA has released $219,000 of the
escrowed funds to the Company. No further remedial activity is likely to be
required other than the recreation of the wetland. The prior owner of the
property on which the Colorado Expansion is planned has removed contaminated
soils with the EPA's approval.
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RISK FACTORS
This Annual Report contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E OF the Securities Exchange Act of 1934, as amended. Such
statements are subject to inherent risks and uncertainties, and actual
results could differ materially from those projected in the forward-looking
statements as a result of certain of the risk factors set forth below and
elsewhere in this Annual Report. In addition to the other information
contained in this Annual Report, the following risk factors should be
carefully considered.
RISKS OF CASINO DEVELOPMENT. The expansion of the Company's
existing casino operations in Colorado (the "Colorado Expansion"), as with
any other major casino construction project that the Company may pursue,
entails significant risks, including shortages of materials or skilled labor,
unforeseen engineering, construction, or geological problems, environmental
contingencies, work stoppages, weather interference, difficulties with
government agencies, and unanticipated cost increases. These risks may be
increased with respect to the Colorado Expansion because it requires
construction in a mountainous historic district. The number and scope of the
licenses and approvals required to complete the construction of the hotel,
parking, roads, and casino facility are extensive, including, among other
items, the approval of state and local land-use authorities and the
acquisition of building and zoning permits. There can be no assurance that
the Company will receive the licenses and approvals necessary to undertake or
complete any of its development plans, that such licenses and approvals will
be obtained within the anticipated time frame, or that such licenses and
approvals will not be subject to unacceptable conditions. Unexpected
concessions required by local, state, or federal regulatory authorities could
involve significant additional costs, delay scheduled openings and result in
significant modifications to existing construction plans. The traffic,
noise, dust, and use of space involved in a construction project of the
magnitude of the Colorado Expansion could adversely effect the operations of
the existing casino.
Because definitive budgets for the Colorado Expansion are not
yet available and the Company has not entered into firm construction
contracts, the existing construction plans for the Colorado Expansion may
vary significantly from those that are currently anticipated. There can be
no assurance, however, that such contracts or other contracts will be
finalized or signed on terms acceptable to the Company. No assurance can be
given that the budgeted costs of the Colorado Expansion will not be exceeded
or that the Colorado Expansion will commence operations within the
contemplated time frame, if at all.
The Company must secure definitive agreements from the City of
Black Hawk to move a road in order to allow completion of the Colorado
Expansion to its currently planned size and scope. In addition, the City of
Black Hawk must also secure definitive agreements with additional private
parties in order to move the road (collectively, the "Agreements"). The
Company has engaged in discussions with the City of Black Hawk and the other
private parties that are required to be parties to the Agreements and
believes that it will be able to enter into the Agreements. Although one of
the necessary parties to the Agreements is Nevada Gold & Casinos, Inc., which
has announced a joint venture to construct and operate a casino/hotel in
Black Hawk, Anchor believes that reconfiguring the road is a benefit to all
parties and that it will be able to enter into the Agreements. There can be
no assurance, however, that Anchor will be
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able to enter into the Agreements. In order to complete the Colorado
Expansion, it may be necessary for the Company to secure similar agreements
with respect to land use from other public and private parties. There can be
no assurance, however, that the Company will be able to enter into such
agreements on acceptable terms.
RISKS OF PURSUING NEW CASINO GAMING OPPORTUNITIES. The
Company is actively seeking to expand its casino operations into
jurisdictions that have legalized or are expected to legalize gaming in the
future. There can be no assurance that the Company will be able to identify
suitable casino projects in which to invest or will be able to complete any
such project as scheduled or contemplated. The Company's ability to complete
and operate new casino projects will be dependent on a number of factors,
many of which are beyond Anchor's control, including identifying suitable
investment partners (if appropriate), negotiating acceptable terms, securing
required state, foreign, and local licenses, permits and approvals, securing
adequate financing on acceptable terms, identifying and securing suitable
locations (which management expects will be limited and in high demand),
voter and other political approvals, demographic trends, and consumers'
gaming preferences. As a result, there can be no assurance that the Company
will be able to develop its current casino operations beyond the planned
Colorado Expansion. In addition, the Company may incur costs in connection
with pursuing new gaming opportunities that it cannot recover and may be
required to expense certain of these costs, which may negatively affect the
Company's reported operating performance for the periods during which such
costs are expensed.
GAMING REGULATIONS AND TAXES. The Company's operations are
subject to extensive state and local regulation and taxation in Nevada,
Colorado, and other jurisdictions in which Anchor operates, and any future
activities in additional jurisdictions will be similarly regulated and taxed.
Regulatory changes or increases in applicable taxes or fees in Nevada or
Colorado or the laws of other jurisdictions in which the Company operates
could have a material adverse effect on the Company. Colorado gaming laws
and gaming tax rates have been modified several times since their adoption in
1991, and additional modifications of Colorado's gaming laws and tax rates
may occur in the future. There can be no assurance that regulations adopted
or taxes imposed by Nevada, Colorado, or other jurisdictions will permit
profitable operations by the Company. State and local authorities require
various licenses, permits, and approvals to be held by the Company, and these
authorities may, among other things, revoke the license of any entity
licensed as a gaming corporation, the registration of any entity registered
as a holding company of a gaming corporation, or the license of any
individual licensed as an officer, director, control person, employee, or
stockholder of a licensed or registered entity. Gaming licenses and related
approvals are deemed to be privileges under Nevada and Colorado law and the
laws of other jurisdictions, and no assurances can be given that existing
licenses will not be revoked.
Colorado law requires local voter approval for any expansion
of limited gaming into additional locales. State and local public
initiatives regarding limited gaming in Colorado are being actively pursued
by many persons. Several cities within Colorado have active citizens' lobbies
that were able to place gaming initiatives on the November 1994 statewide
ballot. Although these initiatives failed by substantial margins, new
initiatives could be introduced on future statewide ballots to allow
expansion of gaming in Colorado. Future initiatives, if passed, could
significantly increase the competition for gaming customers, thereby
adversely affecting Anchor's current business in Colorado.
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RISKS OF PROPRIETARY GAMES. The Company places its
proprietary games in casinos under short-term arrangements, making these
games susceptible to replacement in the face of changes in economic
conditions, pressure from competitors, obsolescence, and declining
popularity. Anchor derives revenues from the sale of souvenir tokens that
are paid out by Silver Strike machines. The primary raw material for the
tokens is silver, the price of which is subject to wide fluctuations. As
silver prices rise, the Company may be unable to pass price increases through
to its casino customers. Introduction of new proprietary games involves
significant risks, including whether the Company will be able to place its
games with casinos, the economic terms on which casinos will accept the
machines, the popularity of the games with gaming patrons, and whether a
successful game can maintain its popularity over the long term. If the
Company is not successful, the effects on Anchor could be adverse. The
Company utilizes outside vendors for a significant portion of its proprietary
game machines and parts. An inability to obtain gaming machines and
components, production parts, and replacement parts on reasonable terms or on
a timely basis could have an adverse effect on Anchor, and, in particular,
failure of suppliers to deliver sufficient quantities of machines and
components to meet demand for the Wheel of Gold machine could materially and
adversely affect growth prospects for the Wheel of Gold game.
Certain of the Company's games, including Silver Strike and
Clear Winner, do not have independent protection of the game itself, and it
is possible that competitors could produce a competitive game without
violating any legal rights of the Company. There can be no assurance that the
Company will be successful in its efforts to protect its rights in its
proprietary games, that innovations in its games will be subject to legal
protection, or that the innovations in its games will give a competitive
advantage to the Company.
ITEM 2. PROPERTIES.
The Company's principal properties consist of (i) the Colorado
Central Station Casino in Black Hawk, Colorado, (ii) the Colorado Grande
Casino in Cripple Creek, Colorado, and (iii) corporate headquarters in Las
Vegas, Nevada.
The Colorado Central Station Casino is situated on
approximately 1.8 acres of land on the south end of Black Hawk, near Main
Street and Colorado State Highway 119. Black Hawk, Colorado is approximately
40 miles from Denver, Colorado. The Colorado Central Station has 623 gaming
machines, 19 table games, and food-court restaurant area. The Colorado
Central Station Casino building has approximately 46,250 square feet of floor
space, with 15,250 square feet of gaming area over three floors. The casino
has 500 valet parking spaces and is the first shuttle stop from Black Hawk's
3000-space public facility.
The Colorado Grande Casino is located 45 miles from Colorado
Springs and 75 miles from Pueblo, Colorado. The facility occupies 15,000
square feet of a commercial facility, of which 3,125 square feet are devoted
to gaming. The casino is located at one of the principal intersections in
Cripple Creek and has 44 adjacent parking spaces and a separate lot for
employee parking. The casino features 212 gaming machines, a full service
restaurant, and bar.
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In October 1994, the Company consolidated its Las Vegas
offices into a new headquarters facility, also located in Las Vegas. Since
that time it has expanded to 17,000 square feet of office space and 30,000
square feet of sub-assembly and warehouse space.
ITEM 3. LEGAL PROCEEDINGS.
The Company is from time to time a party to legal proceedings
that arise in the ordinary course of business. Management does not believe
that its pending and threatened legal proceedings are material, even if the
outcome of such proceedings were to be unfavorable to the Company.
Management does not believe that the outcome of its pending and threatened
legal proceedings would have a material impact on the financial position or
results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's common stock was listed on the Nasdaq National
Market-Registered Trademark- on January 28, 1994 and trades under the symbol
"SLOT." The following table sets forth the high and low closing prices per
share of the Company's common stock on the Nasdaq National Market for the
described periods. The Company has not declared any dividends between
January 28, 1994 and June 30, 1996.
Price Range
------------------------
Fiscal 1995 High Low
- - ----------- ------- -------
First quarter $19 1/2 $11 1/4
Second quarter $19 1/4 $14 1/4
Third quarter $19 $15 1/4
Fourth quarter $23 5/8 $15 1/4
Fiscal 1995 High Low
- - ----------- ------- -------
First quarter $26 1/4 $20 1/2
Second quarter $25 $18 7/8
Third quarter $32 1/4 $21 3/4
Fourth quarter $69 $32 3/4
As of September 17, 1996, there were approximately 4,600
beneficial holders of the Company's common stock.
-20-
<PAGE>
The board of directors intends to retain any earnings of the
Company to support operations and to finance expansion and does not intend to
pay cash dividends on the common stock of Anchor in the foreseeable future.
The Company is a party to a revolving credit facility with a bank that
prohibits the payment of dividends. Subject to contractual restrictions, any
future determinations as to the payment of dividends will be at the
discretion of the board of directors of the Company, and will depend on the
Company's financial condition, results of operations, capital requirements,
and such other factors as the board of directors deems relevant.
Because the Company's principal operating entities were S
corporations from their inception until the consummation of the initial
public offering, a substantial portion of Anchor Gaming's net income in past
years was distributed to its stockholders.
ITEM 6. SELECTED FINANCIAL DATA.
Incorporated herein by reference to the Company's Annual
Report to Stockholders for the year ended June 30, 1996 at pages 17 and 18.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Incorporated herein by reference to the Company's Annual
Report to Stockholders for the year ended June 30, 1996 at pages 19 through
23.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following information is set forth in the Company's Annual
Report to Stockholders for the year ended June 30, 1996, which is
incorporated herein by reference: All Consolidated Financial Statements,
pages 24 through 28; all Notes to Consolidated Financial Statements, pages 29
through 38; and the "Independent Auditors' Report", page 39. With the
exception of the information herein expressly incorporated by reference, the
Company's Annual Report to Stockholders for the year ended June 30, 1996 is
not deemed filed as part of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
-21-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Incorporated herein by reference to the Company's proxy
statement for the November 8, 1996 Annual Meeting of Stockholders under the
caption "Management --Directors and Executive Officers".
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated herein by reference to the Company's proxy
statement for the November 8, 1996 Annual Meeting of Stockholders under the
caption "Executive Compensation and Other Information", provided that the
Performance Graph and the Compensation Committee Report on Executive
Compensation are expressly not incorporated herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated herein by reference to the Company's proxy
statement for the November 8, 1996 Annual Meeting of Stockholders under the
caption "Security Ownership of Certain Beneficial Owners and Management".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated herein by reference to the Company's proxy
statement for the November 8, 1996 Annual Meeting of Stockholders under the
caption "Executive Compensation and Other Information -- Compensation
Committee Interlocks and Insider Participation."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) The following consolidated financial statements are incorporated
by reference to the Company's Annual Report to Stockholders for
the fiscal year ended June 30, 1996 attached hereto:
Consolidated Balance Sheets as of June 30, 1996 and 1995
Consolidated Statements of Income for the fiscal years
ended June 30, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity for the
fiscal years ended June 30, 1996, 1995 and 1994
-22-
<PAGE>
Consolidated Statements of Cash Flows for the fiscal years ended
June 30, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Independent Auditors' Report of Deloitte & Touche LLP
(a)(2) The following accountants' reports and financial schedules for fiscal
years ending June 30, 1996, 1995 and 1994 are submitted herewith:
Independent Auditors' Report of Deloitte & Touche LLP on
Schedule II
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted as the required information is
inapplicable.
(a)(3) Management Contract or Compensatory Plan.
See Index to Exhibits on Pages 26 through 33. Each of the
following Exhibits described on the Index to Exhibits is a
management contract or compensatory plan: Exhibits 10.10
through 10.27 and 10.30 through 10.34.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the fourth quarter
of the fiscal year ended June 30, 1996.
(c) Exhibits
See Index to Exhibits on pages 26 through 33.
(d) Financial Statement Schedules -- The response to this portion of Item 14
is submitted as a separate section of this report on page 34.
-23-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Anchor Gaming has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ANCHOR GAMING
By: /s/ Stanley E. Fulton
---------------------------------
Stanley E. Fulton
Chairman of the Board
and Chief Executive Officer
By: /s/ Salvatore T. DiMascio
---------------------------------
Salvatore T. DiMascio
Executive Vice President,
Chief Financial Officer and
Principal Accounting Officer
Date: September 26, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant
and in the capacities indicated.
/s/ Stanley E. Fulton September 26, 1996
- - --------------------------
Stanley E. Fulton
Director
/s/ Stuart D. Beath September 26, 1996
- - --------------------------
Stuart D. Beath
Director
/s/ Elizabeth F. Jones September 26, 1996
- - --------------------------
Elizabeth F. Jones
Director
/s/ Garret A. Scholz September 26, 1996
- - --------------------------
Garret A. Scholz
Director
-24-
<PAGE>
SIGNATURES (continued)
/s/ Michael B. Fulton September 26, 1996
- - --------------------------
Michael B. Fulton
Director
/s/ Michael D. Rumbolz September 26, 1996
- - --------------------------
Michael D. Rumbolz
Director
-25-
<PAGE>
INDEX TO EXHIBITS Page
----
2.1 Reorganization Agreement (the "Reorganization Agreement") --
among Anchor Gaming, Anchor Coin, D D Stud, Inc., C. G.
Investments, Inc., Colorado Grande Enterprises, Inc., New AC,
New DD, New CG, and certain stockholders of such
corporations. (Incorporated by reference to Exhibit 2.1 to
the Company's Registration Statement on Form S-1
(Registration No. 33-71870)).
2.2 Amendment No. 1 to the Reorganization Agreement, dated as --
of January 25, 1993. (Incorporated by reference to Exhibit 2.2
to the Company's Registration Statement on Form S-1
(Registration No. 33-71870)).
2.3 Purchase Agreement (Global Gaming Products, L.L.C.) between --
Stanley E. Fulton, William Randall Adams, Global Products,
Inc., Michael S. Stone, Thomas J. Matthews, James R. Purdy,
and Anchor Gaming, dated as of December 22, 1993.
(Incorporated by reference to Exhibit 2.3 to the Company's
Registration Statement on Form S-1
(Registration No. 33-71870)).
2.4 Purchase Agreement (Global Gaming Distributors, Inc.) --
between Global Gaming Distributors, Michael S. Stone,
Thomas J. Matthews, James R. Purdy, and Anchor Gaming,
dated as of December 22, 1993. (Incorporated by reference
to Exhibit 2.4 to the Company's Registration Statement
on Form S-1 (Registration No. 33-71870)).
3.1 Restated Articles of Incorporation of Anchor Gaming. --
(Incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-1
(Registration No. 33-71870)).
3.2 Restated Bylaws of Anchor Gaming. (Incorporated by reference --
to Exhibit 3.2 to the Company's Registration Statement
on Form S-1 (Registration No. 33-71870)).
-26-
<PAGE>
INDEX TO EXHIBITS Page
----
4.1 Specimen of Common Stock Certificate. (Incorporated by --
reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-1 (Registration No. 33-71870)).
9.1 Irrevocable Proxy of Elizabeth F. Jones in favor of --
Stanley E. Fulton. (Incorporated by reference to Exhibit
9.1 to the Company's June 30, 1994 Annual Report on Form
10-K (File No. 0-23124)).
9.2 Irrevocable Proxy of Lucinda F. Tischer in favor of --
Stanley E. Fulton. (Incorporated by reference to Exhibit
9.2 to the Company's June 30, 1994 Annual Report on Form
10-K (File No. 0-23124)).
9.3 Irrevocable Proxy of Stanley M. Fulton in favor of Stanley E. --
Fulton. (Incorporated by reference to Exhibit 9.3 to the
Company's June 30, 1994 Annual Report on Form 10-K
(File No. 0-23124)).
9.4* Irrevocable Proxy of Deborah J. Fulton in favor of Stanley E. --
Fulton.
9.5* Irrevocable Proxy of Elizabeth F. Jones in favor of Stanley --
E. Fulton.
9.6* Irrevocable Proxy of Stanley M. Fulton in favor of Stanley E. --
Fulton.
9.7* Irrevocable Proxy of Michael B. Fulton in favor of Stanley E. --
Fulton.
9.8* Irrevocable Proxy of Lucinda F. Tischer in favor of Stanley --
E. Fulton.
-27-
<PAGE>
INDEX TO EXHIBITS Page
----
9.9* Irrevocable Proxy of Virginia L. Fulton in favor of Stanley --
E. Fulton.
10.1 Settlement Agreement between Anchor Gaming, Stanley E. --
Fulton, and Michael B. Fulton, dated as of December 22, 1993.
(Incorporated by reference to Exhibit 10.2 to the Company's
Registration Statement on Form S-1 (Registration No.
33-71870)).
10.2 Commercial Note of Pelican Gaming, Inc. to Anchor Coin dated --
March 15, 1995. (Incorporated by reference to Exhibit 10.1 to
the Company's March 31, 1994 Quarterly Report on Form 10-Q
(File No. 0-23124)).
10.3 Promissory Notes of Anchor Coin, D D Stud, Inc., and C. G. --
Investments, Inc. to Stanley E. Fulton. (Incorporated by
reference to Exhibit 10.4 to the Company's Registration
Statement on Form S-1 (Registration No. 33-71870)).
10.4 Loan Agreement of Pelican Gaming, Inc. to Anchor Coin dated --
as of March 15, 1994. (Incorporated by reference to Exhibit
10.2 to the Company's March 31, 1994 Quarterly Report on Form
10-Q (File No. 0-23124)).
10.5 Promissory Note of Colorado Grande Enterprises, Inc. to C.G. --
Investments, Inc. (Incorporated by reference to Exhibit 10.5
to the Company's Registration Statement on Form S-1
(Registration No. 33-71870)).
10.6 Promissory Notes of Anchor Coin to Michael B. Fulton, Stanley --
M. Fulton, Elizabeth Fulton Jones, Lucinda Fulton Tischer,
Virginia L. Fulton, and Deborah J. Fulton. (Incorporated by
reference to Exhibit 10.6 to the Company's Registration
Statement on Form S-1 (Registration No. 33-71870)).
-28-
<PAGE>
INDEX TO EXHIBITS Page
----
10.7 Promissory Note of Anchor Coin to Elizabeth Fulton and related --
Stock Option Agreement. (Incorporated by reference to Exhibit
10.7 to the Company's Registration Statement on Form S-1
(Registration No. 33-71870)).
10.8 Loan Agreement between Bank of America Nevada and Anchor Coin, --
dated as of June 13, 1994. (Incorporated by reference to
Exhibit 10.6 to the Company's June 30, 1994 Annual Report on
Form 10-K (File No. 0-23124)).
10.9 Lease and Sublease Agreement between Smith's Food & Drug --
Centers, Inc. and Anchor Coin, dated July 28, 1993.
(Confidential Treatment for a portion of this document
was requested and granted pursuant to Rule 406 under the
Securities Act). (Incorporated by reference to Exhibit 10.10
to the Company's Registration Statement on Form S-1
(Registration No. 33-71870)).
10.10 Employment Agreement between Anchor Gaming and Stanley E. --
Fulton. (Incorporated by reference to Exhibit 10.10 to the
Company's June 30, 1994 Annual Report on Form 10-K
(File No. 0-23124)).
10.11 Employment Agreement between Anchor Gaming and Michael S. --
Stone. (Incorporated by reference to Exhibit 10.11 to the
Company's June 30, 1994 Annual Report on Form 10-K
(File No. 0-23124)).
10.12 Employment Agreement between Anchor Gaming and Thomas J. --
Matthews. (Incorporated by reference to Exhibit 10.12 to
the Company's June 30, 1994 Annual Report on Form 10-K
(File No. 0-23124)).
-29-
<PAGE>
INDEX TO EXHIBITS Page
----
10.13 Employment Agreement between Anchor Gaming and Joseph Murphy. --
(Incorporated by reference to Exhibit 10.13 to the Company's
June 30, 1994 Annual Report on Form 10-K (File No. 0-23124)).
10.14 Employment Agreement between Anchor Gaming and James R. Purdy. --
(Incorporated by reference to Exhibit 10.14 to the Company's
June 30, 1994 Annual Report on Form 10-K (File No. 0-23124)).
10.15 Employment Agreement between Anchor Gaming and Nick E. --
Greenwood. (Incorporated by reference to Exhibit 10.15 to
the Company's June 30, 1994 Annual Report on Form 10-K
(File No. 0-23124)).
10.16 Employment Agreement between Anchor Gaming and William --
Randall Adams. (Incorporated by reference to Exhibit 10.16
to the Company's June 30, 1994 Annual Report on Form 10-K
(File No. 0-23124)).
10.17 Employment Agreement between Anchor Gaming and Salvatore T. --
DiMascio. (Incorporated by reference to Exhibit 10.17 to the
Company's June 30, 1994 Annual Report on Form 10-K
(File No. 0-23124)).
10.18 Option Agreement between Michael S. Stone and Anchor Gaming. --
(Incorporated by reference to Exhibit 10.18 to the Company's
June 30, 1994 Annual Report on Form 10-K (File No. 0-23124)).
10.19 Option Agreement between Thomas J. Matthews and Anchor Gaming. --
(Incorporated by reference to Exhibit 10.19 to the Company's
June 30, 1994 Annual Report on Form 10-K (File No. 0-23124)).
-30-
<PAGE>
INDEX TO EXHIBITS Page
----
10.20 Option Agreement between Joseph Murphy and Anchor Gaming. --
(Incorporated by reference to Exhibit 10.20 to the Company's
June 30, 1994 Annual Report on Form 10-K (File No. 0-23124)).
10.21 Option Agreement between William Randall Adams and Anchor --
Gaming. (Incorporated by reference to Exhibit 10.21 to the
Company's June 30, 1994 Annual Report on Form 10-K
(File No. 0-23124)).
10.22 Option Agreement between Nick E. Greenwood and Anchor Gaming. --
(Incorporated by reference to Exhibit 10.22 to the Company's
June 30, 1994 Annual Report on Form 10-K (File No. 0-23124)).
10.23 Option Agreement between James R. Purdy and Anchor Gaming. --
(Incorporated by reference to Exhibit 10.23 to the Company's
June 30, 1994 Annual Report on Form 10-K (File No. 0-23124)).
10.24 Option Agreement between Salvatore T. DiMascio and Anchor --
Gaming. (Incorporated by reference to Exhibit 10.24 to the
Company's June 30, 1994 Annual Report on Form 10-K
(File No. 0-23124)).
10.25 Option Agreement between Anchor Gaming and Geoffrey A. Sage. --
(Incorporated by reference to Exhibit 10.25 to the Company's
June 30, 1994 Annual Report on Form 10-K (File No. 0-23124)).
10.26 Option Agreement between the Company and Stuart D. Beath. --
(Incorporated by reference to Exhibit 10.26 to the Company's
June 30, 1994 Annual Report on Form 10-K (File No. 0-23124)).
-31-
<PAGE>
INDEX TO EXHIBITS Page
----
10.27 Option Agreement between the Company and Garret A. Scholz. --
(Incorporated by reference to Exhibit 10.27 to the Company's
June 30, 1994 Annual Report on Form 10-K (File No. 0-23124)).
10.28 Form of Indemnification Agreement between the Company and --
Officers and Directors. (Incorporated by reference to
Exhibit 10.28 to the Company's June 30, 1994 Annual Report on
Form 10-K (File No. 0-23124)).
10.29 Tax Indemnification Agreement between Stanley E. Fulton, Anchor --
Gaming and its subsidiaries. (Incorporated by reference to
Exhibit 10.29 to the Company's June 30, 1994 Annual Report on
Form 10-K (File No. 0-23124)).
10.30 Option Agreement between the Company and Elizabeth Fulton. --
(Incorporated by reference to Exhibit 10.30 to the Company's
June 30, 1994 Annual Report on Form 10-K (File No. 0-23124)).
10.31 Option Agreement between the Company and Michael D. Rumbolz. --
(Incorporated by reference to Exhibit 10.31 to the Company's
June 30, 1995 Annual Report on Form 10-K (File No. 0-23124)).
10.32 Employment Agreement between the Company and Michael D. Rumbolz. --
(Incorporated by reference to Exhibit 10.31 to the Company's
June 30, 1995 Annual Report on Form 10-K (File No. 0-23124)).
10.33 Anchor Gaming 1995 Employee Stock Option Plan. (Incorporated --
by reference to Exhibit 10.31 to the Company's June 30, 1995
Annual Report on Form 10-K (File No. 0-23124)).
-32-
<PAGE>
INDEX TO EXHIBITS Page
----
10.34* Addendum Agreement to amend the Employment and Stock Option --
Agreements between the Company and Salvatore T. DiMascio.
13.1* Annual Report to Stockholders (only those portions --
incorporated by reference into the Form 10-K are filed
herewith).
21.1* List of Subsidiary Corporations. --
-33-
<PAGE>
INDEPENDENT AUDITORS' REPORT
Anchor Gaming and Subsidiaries:
We have audited the consolidated financial statements of Anchor Gaming and
subsidiaries (the "Company") as of June 30, 1996 and 1995, and for each of the
three years in the period ended June 30, 1996 and have issued our report thereon
dated August 1, 1996; such consolidated financial statements and report are
included in your 1996 Annual Report to Stockholders and are incorporated herein
by reference. Our audits also included the consolidated financial statement
schedule of the Company, listed in Item 14. This consolidated financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such consolidated financial statement schedule, when considered in relation to
the consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Las Vegas, Nevada
August 1, 1996
-34-
<PAGE>
ANCHOR GAMING AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Years Ended June 30, 1996, 1995, and 1994
<TABLE>
<CAPTION>
Additions
Balance at charged to Balance at
beginning cost and Other end of
Description of period expenses adjustments period
- - --------------------------------------------- ----------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Year ended June 30, 1996:
Allowance for doubtful accounts (deducted
from accounts receivable) $ 80,821 $198,000 $ - $ 278,821
Allowance for doubtful accounts (deducted
from notes receivable) 842,147 99,022 (3) (20,000)(1) 915,369
(5,800)(2)
--------- -------- --------- ----------
$ 922,968 $297,022 $ (25,800) $1,194,190
--------- -------- --------- ----------
--------- -------- --------- ----------
Year ended June 30, 1995:
Allowance for doubtful accounts (deducted
from accounts receivable) $ 28,720 $ 52,101 $ - $ 80,821
Allowance for doubtful accounts (deducted
from notes receivable) 352,078 495,000 (4,931)(2) 842,147
--------- -------- --------- ----------
$ 380,798 $547,101 (3) $ (4,931) $ 922,968
--------- -------- --------- ----------
--------- -------- --------- ----------
Year ended June 30, 1994:
Allowance for doubtful accounts (deducted
from accounts receivable) $ - $ 28,720 $ - $ 28,720
Allowance for doubtful accounts (deducted
from notes receivable) 434,288 50,000 (33,225)(1) 352,078
(98,985)(2)
--------- -------- --------- ----------
$ 434,288 $ 78,720 $(132,210) $ 380,798
--------- -------- --------- ----------
--------- -------- --------- ----------
</TABLE>
(1) Amounts deemed to be uncollectible
(2) Amounts recovered
(3) Primarily charged to development costs included in selling, general and
administrative expenses
-35-
<PAGE>
Exhibit 9.4
<PAGE>
May 31, 1996
Anchor Gaming
815 Pilot Road, Suite G
Las Vegas, Nevada 89119
Re: Irrevocable Proxy for Stock of Anchor Gaming
Ladies and Gentlemen:
The proxy granted by this letter is being granted in connection with the
execution and delivery of similar proxies by other members of the Fulton family
and in reliance upon such action by such other members of the Fulton family.
The undersigned hereby revokes any previous proxies (including, without
limitation, any irrevocable proxy in favor of Stanley E. Fulton, to which
revocation Mr. Fulton does hereby consent) and irrevocably appoints Stanley E.
Fulton and his designees and each of them (the "PROXYHOLDER"), effective as of
the date of this letter as the proxy of the undersigned to attend any and all
meetings of stockholders of Anchor Gaming and any adjournments or postponements
of such meetings (collectively, a "MEETING"), to vote for and in the name,
place, and stead of the undersigned at any Meeting all shares of Common Stock,
par value $.01 per share (the "COMMON SHARES"), beneficially owned directly or
indirectly by the undersigned on the date of this letter and any other shares of
capital stock or other voting security of Anchor Gaming, a Nevada corporation
("ANCHOR GAMING"), hereafter beneficially owned , directly or indirectly, by the
undersigned (collectively, the "PROXY SHARES"), to execute written consents to
corporate action with respect to the Proxy Shares, and to represent and
otherwise act for the undersigned with the same force and effect as if the
undersigned were personally present at such Meeting or executing such consent
with respect to any matter. The undersigned agrees to inform the Proxyholder
promptly of any change in the number of Proxy Shares.
The undersigned represents and warrants to the Proxyholder that (i) the
undersigned has all necessary power and authority to execute and deliver this
proxy; (ii) none of the Proxy Shares is subject to any voting trust or any other
agreement, arrangement, or understanding with respect to the voting of such
shares other than this proxy that is not effectively revoked by this proxy; and
(iii) the undersigned owns all of the Proxy Shares free and clear of any lien,
claim, charge, security interest, or other adverse claim whatsoever. The
undersigned and the Proxyholder agree that the undersigned may offer and sell
the Proxy Shares without restriction under this proxy, and that upon such sale
the sold Proxy Shares will be released from this proxy. The undersigned further
agrees that until such sale, the Proxy Shares will bear an appropriate legend
referring to this proxy.
This proxy is coupled with an interest and is expressly made irrevocable
and will expire at 5:00 p.m., Las Vegas time, on December 31, 1998. The
undersigned acknowledges that monetary damages would be an inadequate remedy for
a breach of the provisions of this proxy and that (in addition to any other
remedy available at law) the obligations of the undersigned and the rights of
the Proxyholder are specifically enforceable.
<PAGE>
The undersigned authorizes the Proxyholder to substitute any other person
or entity to act under this proxy, to revoke any such substitution, and to file
this proxy and any substitution or revocation of this proxy with the Secretary
of Anchor Gaming. The undersigned and the Proxyholder further agree that in the
event of death, or during the period of mental incapacity, of the Proxyholder,
Michael B. Fulton and Elizabeth Fulton Jones will, acting together, in each
instance by an instrument signed by each of such persons, be substituted for the
Proxyholder with the same authority as the Proxyholder.
/s/ Deborah J. Fulton
---------------------------------------
Name: Deborah J. Fulton
---------------------------------------
<PAGE>
Exhibit 9.5
<PAGE>
May 16, 1996
Anchor Gaming
815 Pilot Road, Suite G
Las Vegas, Nevada 89119
Re: Irrevocable Proxy for Stock of Anchor Gaming
Ladies and Gentlemen:
The proxy granted by this letter is being granted in connection with the
execution and delivery of similar proxies by other members of the Fulton family
and in reliance upon such action by such other members of the Fulton family.
The undersigned hereby revokes any previous proxies (including, without
limitation, any irrevocable proxy in favor of Stanley E. Fulton, to which
revocation Mr. Fulton does hereby consent) and irrevocably appoints Stanley E.
Fulton and his designees and each of them (the "PROXYHOLDER"), effective as of
the date of this letter as the proxy of the undersigned to attend any and all
meetings of stockholders of Anchor Gaming and any adjournments or postponements
of such meetings (collectively, a "MEETING"), to vote for and in the name,
place, and stead of the undersigned at any Meeting all shares of Common Stock,
par value $.01 per share (the "COMMON SHARES"), beneficially owned directly or
indirectly by the undersigned on the date of this letter and any other shares of
capital stock or other voting security of Anchor Gaming, a Nevada corporation
("ANCHOR GAMING"), hereafter beneficially owned , directly or indirectly, by the
undersigned (collectively, the "PROXY SHARES"), to execute written consents to
corporate action with respect to the Proxy Shares, and to represent and
otherwise act for the undersigned with the same force and effect as if the
undersigned were personally present at such Meeting or executing such consent
with respect to any matter. The undersigned agrees to inform the Proxyholder
promptly of any change in the number of Proxy Shares.
The undersigned represents and warrants to the Proxyholder that (i) the
undersigned has all necessary power and authority to execute and deliver this
proxy; (ii) none of the Proxy Shares is subject to any voting trust or any other
agreement, arrangement, or understanding with respect to the voting of such
shares other than this proxy that is not effectively revoked by this proxy; and
(iii) the undersigned owns all of the Proxy Shares free and clear of any lien,
claim, charge, security interest, or other adverse claim whatsoever. The
undersigned and the Proxyholder agree that the undersigned may offer and sell
the Proxy Shares without restriction under this proxy, and that upon such sale
the sold Proxy Shares will be released from this proxy. The undersigned further
agrees that until such sale, the Proxy Shares will bear an appropriate legend
referring to this proxy.
This proxy is coupled with an interest and is expressly made irrevocable
and will expire at 5:00 p.m., Las Vegas time, on December 31, 1998. The
undersigned acknowledges that monetary damages would be an inadequate remedy for
a breach of the provisions of this proxy and that (in addition to any other
remedy available at law) the obligations of the undersigned and the rights of
the Proxyholder are specifically enforceable.
<PAGE>
The undersigned authorizes the Proxyholder to substitute any other person
or entity to act under this proxy, to revoke any such substitution, and to file
this proxy and any substitution or revocation of this proxy with the Secretary
of Anchor Gaming. The undersigned and the Proxyholder further agree that in the
event of death, or during the period of mental incapacity, of the Proxyholder,
Michael B. Fulton and Elizabeth Fulton Jones will, acting together, in each
instance by an instrument signed by each of such persons, be substituted for the
Proxyholder with the same authority as the Proxyholder.
/s/ Elizabeth F. Jones
---------------------------------------
Name: Elizabeth F. Jones
---------------------------------------
<PAGE>
Exhibit 9.6
<PAGE>
May 17, 1996
Anchor Gaming
815 Pilot Road, Suite G
Las Vegas, Nevada 89119
Re: Irrevocable Proxy for Stock of Anchor Gaming
Ladies and Gentlemen:
The proxy granted by this letter is being granted in connection with the
execution and delivery of similar proxies by other members of the Fulton family
and in reliance upon such action by such other members of the Fulton family.
The undersigned hereby revokes any previous proxies (including, without
limitation, any irrevocable proxy in favor of Stanley E. Fulton, to which
revocation Mr. Fulton does hereby consent) and irrevocably appoints Stanley E.
Fulton and his designees and each of them (the "PROXYHOLDER"), effective as of
the date of this letter as the proxy of the undersigned to attend any and all
meetings of stockholders of Anchor Gaming and any adjournments or postponements
of such meetings (collectively, a "MEETING"), to vote for and in the name,
place, and stead of the undersigned at any Meeting all shares of Common Stock,
par value $.01 per share (the "COMMON SHARES"), beneficially owned directly or
indirectly by the undersigned on the date of this letter and any other shares of
capital stock or other voting security of Anchor Gaming, a Nevada corporation
("ANCHOR GAMING"), hereafter beneficially owned , directly or indirectly, by the
undersigned (collectively, the "PROXY SHARES"), to execute written consents to
corporate action with respect to the Proxy Shares, and to represent and
otherwise act for the undersigned with the same force and effect as if the
undersigned were personally present at such Meeting or executing such consent
with respect to any matter. The undersigned agrees to inform the Proxyholder
promptly of any change in the number of Proxy Shares.
The undersigned represents and warrants to the Proxyholder that (i) the
undersigned has all necessary power and authority to execute and deliver this
proxy; (ii) none of the Proxy Shares is subject to any voting trust or any other
agreement, arrangement, or understanding with respect to the voting of such
shares other than this proxy that is not effectively revoked by this proxy; and
(iii) the undersigned owns all of the Proxy Shares free and clear of any lien,
claim, charge, security interest, or other adverse claim whatsoever. The
undersigned and the Proxyholder agree that the undersigned may offer and sell
the Proxy Shares without restriction under this proxy, and that upon such sale
the sold Proxy Shares will be released from this proxy. The undersigned further
agrees that until such sale, the Proxy Shares will bear an appropriate legend
referring to this proxy.
This proxy is coupled with an interest and is expressly made irrevocable
and will expire at 5:00 p.m., Las Vegas time, on December 31, 1998. The
undersigned acknowledges that monetary damages would be an inadequate remedy for
a breach of the provisions of this proxy and that (in addition to any other
remedy available at law) the obligations of the undersigned and the rights of
the Proxyholder are specifically enforceable.
<PAGE>
The undersigned authorizes the Proxyholder to substitute any other person
or entity to act under this proxy, to revoke any such substitution, and to file
this proxy and any substitution or revocation of this proxy with the Secretary
of Anchor Gaming. The undersigned and the Proxyholder further agree that in the
event of death, or during the period of mental incapacity, of the Proxyholder,
Michael B. Fulton and Elizabeth Fulton Jones will, acting together, in each
instance by an instrument signed by each of such persons, be substituted for the
Proxyholder with the same authority as the Proxyholder.
/s/ Stanley M. Fulton
---------------------------------------
Name: Stanley M. Fulton
---------------------------------------
<PAGE>
Exhibit 9.7
<PAGE>
May 17, 1996
Anchor Gaming
815 Pilot Road, Suite G
Las Vegas, Nevada 89119
Re: Irrevocable Proxy for Stock of Anchor Gaming
Ladies and Gentlemen:
The proxy granted by this letter is being granted in connection with the
execution and delivery of similar proxies by other members of the Fulton family
and in reliance upon such action by such other members of the Fulton family.
The undersigned hereby revokes any previous proxies (including, without
limitation, any irrevocable proxy in favor of Stanley E. Fulton, to which
revocation Mr. Fulton does hereby consent) and irrevocably appoints Stanley E.
Fulton and his designees and each of them (the "PROXYHOLDER"), effective as of
the date of this letter as the proxy of the undersigned to attend any and all
meetings of stockholders of Anchor Gaming and any adjournments or postponements
of such meetings (collectively, a "MEETING"), to vote for and in the name,
place, and stead of the undersigned at any Meeting all shares of Common Stock,
par value $.01 per share (the "COMMON SHARES"), beneficially owned directly or
indirectly by the undersigned on the date of this letter and any other shares of
capital stock or other voting security of Anchor Gaming, a Nevada corporation
("ANCHOR GAMING"), hereafter beneficially owned , directly or indirectly, by the
undersigned (collectively, the "PROXY SHARES"), to execute written consents to
corporate action with respect to the Proxy Shares, and to represent and
otherwise act for the undersigned with the same force and effect as if the
undersigned were personally present at such Meeting or executing such consent
with respect to any matter. The undersigned agrees to inform the Proxyholder
promptly of any change in the number of Proxy Shares.
The undersigned represents and warrants to the Proxyholder that (i) the
undersigned has all necessary power and authority to execute and deliver this
proxy; (ii) none of the Proxy Shares is subject to any voting trust or any other
agreement, arrangement, or understanding with respect to the voting of such
shares other than this proxy that is not effectively revoked by this proxy; and
(iii) the undersigned owns all of the Proxy Shares free and clear of any lien,
claim, charge, security interest, or other adverse claim whatsoever. The
undersigned and the Proxyholder agree that the undersigned may offer and sell
the Proxy Shares without restriction under this proxy, and that upon such sale
the sold Proxy Shares will be released from this proxy. The undersigned further
agrees that until such sale, the Proxy Shares will bear an appropriate legend
referring to this proxy.
This proxy is coupled with an interest and is expressly made irrevocable
and will expire at 5:00 p.m., Las Vegas time, on December 31, 1998. The
undersigned acknowledges that monetary damages would be an inadequate remedy for
a breach of the provisions of this proxy and that (in addition to any other
remedy available at law) the obligations of the undersigned and the rights of
the Proxyholder are specifically enforceable.
<PAGE>
The undersigned authorizes the Proxyholder to substitute any other person
or entity to act under this proxy, to revoke any such substitution, and to file
this proxy and any substitution or revocation of this proxy with the Secretary
of Anchor Gaming. The undersigned and the Proxyholder further agree that in the
event of death, or during the period of mental incapacity, of the Proxyholder,
Michael B. Fulton and Elizabeth Fulton Jones will, acting together, in each
instance by an instrument signed by each of such persons, be substituted for the
Proxyholder with the same authority as the Proxyholder.
/s/ Michael B. Fulton
---------------------------------------
Name: Stanley M. Fulton
---------------------------------------
<PAGE>
Exhibit 9.8
<PAGE>
May 9, 1996
Anchor Gaming
815 Pilot Road, Suite G
Las Vegas, Nevada 89119
Re: Irrevocable Proxy for Stock of Anchor Gaming
Ladies and Gentlemen:
The proxy granted by this letter is being granted in connection with the
execution and delivery of similar proxies by other members of the Fulton family
and in reliance upon such action by such other members of the Fulton family.
The undersigned hereby revokes any previous proxies (including, without
limitation, any irrevocable proxy in favor of Stanley E. Fulton, to which
revocation Mr. Fulton does hereby consent) and irrevocably appoints Stanley E.
Fulton and his designees and each of them (the "PROXYHOLDER"), effective as of
the date of this letter as the proxy of the undersigned to attend any and all
meetings of stockholders of Anchor Gaming and any adjournments or postponements
of such meetings (collectively, a "MEETING"), to vote for and in the name,
place, and stead of the undersigned at any Meeting all shares of Common Stock,
par value $.01 per share (the "COMMON SHARES"), beneficially owned directly or
indirectly by the undersigned on the date of this letter and any other shares of
capital stock or other voting security of Anchor Gaming, a Nevada corporation
("ANCHOR GAMING"), hereafter beneficially owned , directly or indirectly, by the
undersigned (collectively, the "PROXY SHARES"), to execute written consents to
corporate action with respect to the Proxy Shares, and to represent and
otherwise act for the undersigned with the same force and effect as if the
undersigned were personally present at such Meeting or executing such consent
with respect to any matter. The undersigned agrees to inform the Proxyholder
promptly of any change in the number of Proxy Shares.
The undersigned represents and warrants to the Proxyholder that (i) the
undersigned has all necessary power and authority to execute and deliver this
proxy; (ii) none of the Proxy Shares is subject to any voting trust or any other
agreement, arrangement, or understanding with respect to the voting of such
shares other than this proxy that is not effectively revoked by this proxy; and
(iii) the undersigned owns all of the Proxy Shares free and clear of any lien,
claim, charge, security interest, or other adverse claim whatsoever. The
undersigned and the Proxyholder agree that the undersigned may offer and sell
the Proxy Shares without restriction under this proxy, and that upon such sale
the sold Proxy Shares will be released from this proxy. The undersigned further
agrees that until such sale, the Proxy Shares will bear an appropriate legend
referring to this proxy.
This proxy is coupled with an interest and is expressly made irrevocable
and will expire at 5:00 p.m., Las Vegas time, on December 31, 1998. The
undersigned acknowledges that monetary damages would be an inadequate remedy for
a breach of the provisions of this proxy and that (in addition to any other
remedy available at law) the obligations of the undersigned and the rights of
the Proxyholder are specifically enforceable.
<PAGE>
The undersigned authorizes the Proxyholder to substitute any other person
or entity to act under this proxy, to revoke any such substitution, and to file
this proxy and any substitution or revocation of this proxy with the Secretary
of Anchor Gaming. The undersigned and the Proxyholder further agree that in the
event of death, or during the period of mental incapacity, of the Proxyholder,
Michael B. Fulton and Elizabeth Fulton Jones will, acting together, in each
instance by an instrument signed by each of such persons, be substituted for the
Proxyholder with the same authority as the Proxyholder.
/s/ Lucinda F. Tischer
---------------------------------------
Name: Lucinda F. Tischer
---------------------------------------
<PAGE>
Exhibit 9.9
<PAGE>
May 9, 1996
Anchor Gaming
815 Pilot Road, Suite G
Las Vegas, Nevada 89119
Re: Irrevocable Proxy for Stock of Anchor Gaming
Ladies and Gentlemen:
The proxy granted by this letter is being granted in connection with the
execution and delivery of similar proxies by other members of the Fulton family
and in reliance upon such action by such other members of the Fulton family.
The undersigned hereby revokes any previous proxies (including, without
limitation, any irrevocable proxy in favor of Stanley E. Fulton, to which
revocation Mr. Fulton does hereby consent) and irrevocably appoints Stanley E.
Fulton and his designees and each of them (the "PROXYHOLDER"), effective as of
the date of this letter as the proxy of the undersigned to attend any and all
meetings of stockholders of Anchor Gaming and any adjournments or postponements
of such meetings (collectively, a "MEETING"), to vote for and in the name,
place, and stead of the undersigned at any Meeting all shares of Common Stock,
par value $.01 per share (the "COMMON SHARES"), beneficially owned directly or
indirectly by the undersigned on the date of this letter and any other shares of
capital stock or other voting security of Anchor Gaming, a Nevada corporation
("ANCHOR GAMING"), hereafter beneficially owned , directly or indirectly, by the
undersigned (collectively, the "PROXY SHARES"), to execute written consents to
corporate action with respect to the Proxy Shares, and to represent and
otherwise act for the undersigned with the same force and effect as if the
undersigned were personally present at such Meeting or executing such consent
with respect to any matter. The undersigned agrees to inform the Proxyholder
promptly of any change in the number of Proxy Shares.
The undersigned represents and warrants to the Proxyholder that (i) the
undersigned has all necessary power and authority to execute and deliver this
proxy; (ii) none of the Proxy Shares is subject to any voting trust or any other
agreement, arrangement, or understanding with respect to the voting of such
shares other than this proxy that is not effectively revoked by this proxy; and
(iii) the undersigned owns all of the Proxy Shares free and clear of any lien,
claim, charge, security interest, or other adverse claim whatsoever. The
undersigned and the Proxyholder agree that the undersigned may offer and sell
the Proxy Shares without restriction under this proxy, and that upon such sale
the sold Proxy Shares will be released from this proxy. The undersigned further
agrees that until such sale, the Proxy Shares will bear an appropriate legend
referring to this proxy.
This proxy is coupled with an interest and is expressly made irrevocable
and will expire at 5:00 p.m., Las Vegas time, on December 31, 1998. The
undersigned acknowledges that monetary damages would be an inadequate remedy for
a breach of the provisions of this proxy and that (in addition to any other
remedy available at law) the obligations of the undersigned and the rights of
the Proxyholder are specifically enforceable.
<PAGE>
The undersigned authorizes the Proxyholder to substitute any other person
or entity to act under this proxy, to revoke any such substitution, and to file
this proxy and any substitution or revocation of this proxy with the Secretary
of Anchor Gaming. The undersigned and the Proxyholder further agree that in the
event of death, or during the period of mental incapacity, of the Proxyholder,
Michael B. Fulton and Elizabeth Fulton Jones will, acting together, in each
instance by an instrument signed by each of such persons, be substituted for the
Proxyholder with the same authority as the Proxyholder.
/s/ Virginia L. Fulton
---------------------------------------
Name: Virginia L. Fulton
---------------------------------------
<PAGE>
Exhibit 10.34
<PAGE>
ADDENDUM AGREEMENT
This Addendum Agreement by and between Anchor Gaming, a Nevada corporation,
(the "Company"), and Salvatore T. DiMascio, (the "Employee") (collectively the
"Parties") is entered into this 23rd day of February, 1996.
RECITALS:
A. Whereas the Company and Employee wish to amend that certain Employment
Agreement dated June 20, 1994 and;
B. Whereas the Company and the Employee wish to modify that certain Stock
Option Agreement dated June 7, 1994,
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the Parties do hereby agree as follows:
TERMS:
1. The Parties agree to amend Paragraph numbered 5 of that certain
Employment Agreement dated June 20, 1994 as follows:
"5. COMPENSATION. Beginning on the Start Date and for the term of this
Agreement, the Company shall pay to Employee an annual salary of One Hundred
Fifty Thousand Dollars ($150,000.00) ("Base Salary"), which amount shall be paid
according to the Company's regular payroll practices. Salary payments shall be
reduced by and subject to withholding for all federal, state, and local taxes
and withholding required by applicable laws and regulations. The Company shall
also pay Employee an annual bonus of at least twenty-five thousand dollars
($25,000.00) and may, at its sole and absolute discretion, pay Employee an
additional annual bonus based on profitability determinations made by the
Company at its sole and absolute discretion. The annual bonus for 1994 and for
1999 shall be prorated according to the number of months that Employee has been
employed in those years." The annual bonus for fiscal 1996 shall be in the
amount of One Hundred Twenty Five Thousand Dollars ($125,000.00) paid August 1,
1996. Employee shall be entitled to a one time bonus payment of One Hundred
Twenty Five Thousand Dollars ($125,000.00) in calendar year 1996 on that day
that funding of a secondary offering of shares in Anchor Gaming is completed.
Employee is not entitled to any other compensation of any nature whatsoever."
2. STOCK OPTION AGREEMENT. The Parties agree to amend that certain Stock
Option Agreement dated June 7, 1994 as follows:
"3. VESTING.
(a) Except as otherwise provided in this Agreement, the Option will become
exercisable in three installments, with one such installment of one-fifth of
the options vesting, on the first anniversary of the Grant Date and two equal
installments of two-fifths of the shares granted in this Option Agreement
vesting on the second and third anniversaries of the Grant Date. The Option
will be exercisable as to any or all shares covered by an installment, at any
time or times after such an installment becomes exercisable and until the
expiration or termination of this Option; provided
<PAGE>
that the Option may not be exercised for less than 100 shares at any one time
(or the remaining shares then purchasable under the Option, if less than 100
shares).
(b) Notwithstanding the foregoing, if the Optionee is still an employee or
director of the Company or a subsidiary of the Company on the date of a Vesting
Event, the Option will become exercisable in full on such date (subject to the
exceptions provided in this Agreement) and may be exercised by the Optionee at
any time during the remaining stated term of the Option; provided that if,
following a Vesting Event, the Optionee ceases to be an employee or director of
the Company or a subsidiary of the Company, then the Option may be exercised by
the Optionee at any time within a period of one year after the date of such
cessation or, if shorter, during the remaining stated term of the Option.
The Employment Agreement dated June 20, 1994 and Stock Option Agreement
dated June 7, 1994 between the Parties remain in full force and effect in all
particulars not amended by this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
"COMPANY" "EMPLOYEE"
ANCHOR GAMING SALVATORE T. DI MASCIO
By: /s/ Stanley E. Fulton By: /s/ Salvatore T. DiMascio
--------------------------- ---------------------------------
Stanley E. Fulton Salvatore T. DiMascio
Its: Chairman of the Board/CEO
<PAGE>
Exhibit 13.1
<PAGE>
ANCHOR GAMING
FINANCIAL AND RELATED INFORMATION
ITEM 6
SELECTED FINANCIAL DATA
(In thousands, except per share amounts and number of gaming machines)
The following selected financial data presented below as of and for the
Company's fiscal years ended June 30, 1996, 1995, 1994, 1993 and 1992 have
been derived from the audited consolidated financial statements of the
Company. The data set forth below are qualified in their entirety by, and
should be read in conjunction with, Management's Discussion and Analysis of
Financial Condition and Results of Operations and the consolidated financial
statements, notes thereto and other financial data appearing elsewhere in
this Annual Report.
<TABLE>
<CAPTION>
Fiscal Year Ended June 30.
------------------------------------------------------
1996 1995 1994 (1) 1993 (2) 1992 (3)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues:
Casino operations $ 65,125 $56,184 $23,713 $ 3,896 $ 2,546
Route operations 28,651 25,818 26,123 25,018 22,839
Proprietary games 21,457 14,159 4,147 117 --
Food and beverage 1,233 1,250 786 446 402
-------- ------- ------- ------- -------
Total revenues 116,466 97,411 54,769 29,477 25,787
-------- ------- ------- ------- -------
Costs and expenses:
Casino operations 26,830 21,500 8,199 1,326 727
Route operations 17,158 15,659 15,416 14,869 14,167
Proprietary games 12,114 9,851 3,047 141 --
Food and beverage 1,300 1,387 768 478 478
Selling, general and administrative 21,074 20,949 10,375 3,573 3,776
Preopening costs -- -- 731 -- --
Depreciation and amortization 4,110 3,215 2,121 1,317 1,083
-------- ------- ------- ------- -------
Total cost and expenses 82,586 72,561 40,657 21,704 20,231
-------- ------- ------- ------- -------
Income from operations 33,881 24,850 14,112 7,773 5,556
Interest income 2,028 1,105 379 88 151
Interest expense (429) (732) (1,314) (954) (1,388)
Other income (expense) (4) 43 244 244 (87) (77)
-------- ------- ------- ------- -------
Income before provision for taxes 35,523 25,467 13,421 6,994 4,242
Historical and pro forma provision
for income taxes (5) 13,188 9,486 4,702 2,378 1,442
-------- ------- ------- ------- -------
Net income and Pro forma net income (5) $ 22,335 $15,981 $ 8,719 $ 4,616 $ 2,800
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Weighted average common and
common equivalent shares
outstanding (in thousands) (6) 12,153 11,447 8,481 6,459 6,459
Earnings and proforma earnings per
common and common equivalent share $ 1.84 $ 1.40 $ 1.03 $ 0.71 $ 0.43
Other Data:
Number of gaming machines in
operation at end of period (7) 1,528 1,399 1,372 922 928
Distributions to stockholders (8) -- -- 6,760 4,500 4,250
Balance Sheet Data:
Cash and cash equivalents $ 78,113 $26,132 $10,472 $ 3,872 $ 2,087
Total assets 162,312 79,266 58,903 22,576 17,922
Current portion of notes payable 100 -- -- 273 3,473
Long term notes payable 3,650 5,989 6,927 17,243 11,580
Minority interest in consolidated subsidiary 673 455 293 326 261
Stockholders' equity (8) 146,307 64,832 47,001 3,840 1,465
</TABLE>
17
<PAGE>
ITEM 6
SELECTED FINANCIAL DATA (condinued)
FOOTNOTES FOR PREVIOUS PAGE
(1) Reflects six months of operations at the Company's Colorado Central
Station Casino in Black Hawk, Colorado which opened December 25, 1993,
five months of proprietary games operations acquired in conjunction with
the Company's initial public offering, and three months of operation at
the Company's Ichabod's Lounge acquired March 31, 1994.
(2) Reflects five months of proprietary games operations, which began in
February, 1993.
(3) Reflects nine months of operations at the Company's Colorado Grande
Casino in Cripple Creek, Colorado, which opened in October, 1991.
(4) Other income (expense) consists of minority interest in earnings of
consolidated subsidiary, and other income (expense).
(5) A pro forma provision for federal income taxes (assuming a 34% effective
tax rate through 1994, 35% thereafter) has been calculated for all
periods prior to the initial public offering as if the principal
subsidiaries of the Company had not elected to be treated as S
corporations during those periods.
(6) Weighted average shares outstanding are presented as if the reorganization
completed in conjunction with the Company's initial public offering took
place July 1, 1989.
(7) Includes gaming machines operated in the Company's gaming machine route in
Nevada and in the Colorado Central Station and Colorado Grande Casinos.
(8) Because the principal subsidiaries of the Company elected to be treated as
S corporations prior to the Company's initial public offering, a
substantial portion of the Company's net income in past years was
distributed to its stockholders. Subsequent to its initial public
offering, earnings have been retained to support operations and to
finance expansion.
18
<PAGE>
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Annual Report 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.
OVERVIEW
On April 23, 1996, Anchor Gaming ("Anchor" or, the "Company") completed a
secondary offering of 2.3 million shares of common stock at a price of $37 per
share, 1.55 million of these shares were sold by the Company (the "Secondary
Offering") and the remaining 750,000 shares were sold by selling stockholders.
Net proceeds to the Company from the Secondary Offering were $53.9 million and
are being used to partially fund the estimated $60.0 million planned development
of the Company's second casino in Black Hawk, Colorado and to purchase
proprietary gaming machines, primarily to meet existing and anticipated demand
for the Company's newest game, Wheel of Gold, which the Company began installing
in casinos in December 1995.
In February 1994, the Company completed its initial public offering (the
"IPO") of 3,162,500 shares of common stock at a price of $12 per share with net
proceeds to the Company of $34.1 million. Simultaneous with the closing of the
IPO, Anchor became the holding company for its current subsidiaries, Anchor
Coin, Colorado Grande Enterprises, Inc., C.G. Investments, Inc., and D D Stud,
Inc. (the "Reorganization"), which had been operated under different ownership
structures controlled primarily by Stanley E. Fulton, the Chairman of the Board
and Chief Executive Officer of Anchor. Also at the time of the IPO, the Company
acquired all of the beneficial ownership of Global Gaming Products, L.L.C. and
certain related assets from Global Distributors, Inc. (the "Acquisition"), which
were primarily involved in the distribution of the proprietary game Silver
Strike. Stanley E. Fulton also owned 50% of Global Gaming Products, L.L.C.
prior to the Acquisition. The consolidated financial statements and other
financial data included herein give retroactive effect to the Reorganization.
The financial position and operating results of Colorado Grande Enterprises,
Inc. are included in the consolidated financial statements as a 66.5%
consolidated subsidiary of C.G. Investments, Inc. through the date of the IPO.
Subsequent to the IPO and simultaneous Reorganization, Anchor beneficially owns
80% of Colorado Grande Enterprises, Inc.
The fiscal 1994 consolidated financial statements reflect a full year of
results for the Company's Nevada route operation and Colorado Grande Casino.
The Colorado Central Station Casino, which opened December 25, 1993, provided
just over six months of operating results during fiscal 1994. Silver Strike,
which was acquired in the Acquisition, contributed just under five months of
operating results in fiscal 1994.
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 years ended June
30, 1994, 1995, and 1996. The growth in casino revenues as a percentage of
total revenues is attributable to the opening of the Colorado Central Station
Casino in December 1993. The introduction of the Silver Strike game after the
IPO in February 1994 accounts for most of the significant growth of revenues
from proprietary games operations as a percentage of total revenues. The
Company's newest proprietary game, Wheel of Gold 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.
YEAR ENDED JUNE 30,
SOURCES OF REVENUES: 1996 1995 1994
------- ------- -------
Casino operations 55.9% 57.7% 43.3%
Gaming machine route operations 24.6 26.5 47.7
Proprietary games operations 18.4 14.5 7.6
Food and beverage operations 1.1 1.3 1.4
------ ------ ------
TOTAL OPERATIONS 100.0% 100.0% 100.0%
------ ------ ------
------ ------ ------
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
REVENUES. Total revenues were $116.5 million for the fiscal year ended
June 30, 1996, an increase of $19.1 million or 19.6% from $97.4 million for the
fiscal year ended June 30, 1995.
Revenues from casino operations were $65.1 million for the fiscal year
ended June 30, 1996, an increase of $8.9 million or 15.9% from $56.2 for the
fiscal year ended June 30, 1995. The increase is primarily due to increased
revenue at the Colorado Central Station Casino and to a lesser extent due to
increased revenues at the Colorado Grande Casino.
Revenues from route operations were $28.7 million for the fiscal year ended
June 30, 1996, an increase of $2.9 million or 11.2% from
19
<PAGE>
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
$25.8 million for the fiscal year ended June 30, 1995. Machines on route
increased to 692 at June 30, 1996, from 606 at June 30, 1995, while average
machines on route during fiscal 1996 were 70 machines greater than fiscal 1995.
Revenues from proprietary games operations were $21.5 million for the
fiscal year ended June 30, 1996, an increase of $7.3 million or 51.4% from $14.2
million for the fiscal year ended June 30, 1995. This increase is primarily due
to revenues generated from the Company's newest proprietary game, Wheel of Gold
introduced December 29, 1995, as well as increased revenues generated from the
proprietary games Clear Winner and Silver Strike.
Revenues from food and beverage operations were $1.2 million for the fiscal
year ended June 30, 1996, a decrease of $18,000 or 1.4% from $1.3 million for
the fiscal year ended June 30, 1995.
COSTS AND EXPENSES. Total costs and expenses were $82.6 million for the
fiscal year ended June 30, 1996, an increase of $10.0 million or 13.8% from
$72.6 million for the fiscal year ended June 30, 1995.
Costs and expenses of casino operations were $26.8 million for the fiscal
year ended June 30, 1996, an increase of $5.3 million or 24.8% from $21.5
million for the fiscal year ended June 30, 1995. Casino costs and expenses as a
percentage of casino revenue increased to 41.2% during fiscal 1996 from 38.3%
during fiscal year 1995. The increase in casino costs and expenses was
primarily due to increased gaming taxes, direct payroll and promotions at both
of the Company's casinos.
Costs and expenses of route operations were $17.2 million for the fiscal
year ended June 30, 1996, an increase of $1.5 million or 9.6% from $15.7 million
for the fiscal year ended June 30, 1995. Costs and expenses of route operations
as a percentage of route revenue decreased to 59.9% during fiscal 1996 from
60.7% during fiscal 1995. The increase in route costs and expenses was
primarily due to increased location costs, related to increased machines on
route, and to a lesser extent increased direct payroll costs.
Costs and expenses of proprietary games operations were $12.1 million for
the fiscal year ended June 30, 1996, an increase of $2.1 million or 21.5% from
$9.9 million for the fiscal year ended June 30, 1995. Proprietary games costs
and expenses as a percentage of proprietary games revenues decreased to 56.5%
during fiscal 1996 from 70.7% during fiscal 1995. The decrease in proprietary
games costs as a percentage of revenue is a result of the Company's newest
proprietary game Wheel of Gold 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 $1.3 million for the fiscal
year ended June 30, 1996, a decrease of $86,000 or 6.2% from $1.4 million for
the fiscal year ended June 30, 1995. Food and beverage costs and expenses as a
percentage of food and beverage revenue decreased to 105.4% during fiscal 1996
from 110.9% during fiscal 1995.
Selling, general and administrative ("SG&A") expenses were $21.1 million
for the fiscal year ended June 30, 1996, an increase of $125,000 or 0.6% from
$20.9 million for the fiscal year ended June 30, 1995. SG&A expenses as a
percentage of total revenue decreased to 18.1% during fiscal 1996 from 21.5%
during fiscal 1995. The increase in SG&A expenses is primarily due to increased
expenses at the Company's Colorado Central Station Casino of approximately $1.2
million and an increase in SG&A expenses in the Company's proprietary games
operations of approximately $828,000, mostly offset by a reduction in corporate
development costs. The Company incurred $269,000 in development costs during
the fiscal year ended June 30, 1996 as compared to approximately $2.1 million
during the fiscal year ended June 30, 1995.
Depreciation and amortization expense was $4.1 million for the fiscal year
ended June 30, 1996, an increase of $895,000 or 27.8% from $3.2 million for the
fiscal year ended June 30, 1995. 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 $33.9 million for the fiscal year ended June 30, 1996, an
increase of $9.0 million or 36.3% from $24.9 million for the fiscal year ended
June 30, 1995. As a percentage of total revenues, income from operations
increased to 29.1% during fiscal 1996 from 25.5% during fiscal 1995.
INTEREST INCOME. Interest income was $2.0 million for the fiscal year
ended June 30, 1996, an increase of $923,000 or 83.5% from $1.1 million for the
fiscal year ended June 30, 1995. 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.
20
<PAGE>
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
INTEREST EXPENSE. Interest expense was $429,000 for the fiscal year ended
June 30, 1996, a decrease of $303,000 or 41.4% from $732,000 for the fiscal year
ended June 30, 1995. This decrease is due to reduced average notes payable
during fiscal 1996 as compared to fiscal 1995.
NET INCOME. As a result of the factors discussed above, net income was
$22.3 million for the fiscal year ended June 30, 1996, an increase of $6.3
million or 39.8% from $16.0 million for the fiscal year ended June 30, 1995.
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
REVENUES. Total revenues were $97.4 million for the fiscal year ended June
30, 1995, an increase of $42.6 million or 77.9% from $54.8 million for the
fiscal year ended June 30, 1994.
Revenues from casino operations were $56.2 million for the fiscal year
ended June 30, 1995, an increase of $32.5 million or 136.9% from $23.7 million
for the fiscal year ended June 30, 1994. The increase is primarily due to the
opening of the Colorado Central Station Casino on December 25, 1993, and to a
lesser extent, due to increased revenue at the Colorado Central Station Casino
during the six months ended June 30, 1995.
Revenues from route operations were $25.8 million for the fiscal year ended
June 30, 1995, a decrease of $304,000 or 1.2% from $26.1 million for the fiscal
year ended June 30, 1994. Machines on route increased to 606 at June 30, 1995,
from 575 at June 30, 1994, while average machines on route during fiscal 1995
were 33 machines less than fiscal 1994.
Revenues from proprietary games operations were $14.2 million for the
fiscal year ended June 30, 1995, an increase of $10.0 million or 241.4% from
$4.1 million for the fiscal year ended June 30, 1994. This increase is
primarily due to revenues generated from the acquired proprietary games
operations, which had a full year of revenue in fiscal 1995 as compared to less
than five months of revenue in fiscal 1994, and to a lesser extent, increased
proprietary games revenues over the prior fiscal year.
Revenues from food and beverage operations were $1.3 million for the fiscal
year ended June 30, 1995, an increase of $464,000 or 59.1% from $786,000 for the
fiscal year ended June 30, 1994. The increase is primarily a result of the
opening of the Colorado Central Station Casino, which had a full year of
operations during fiscal 1995 as compared to just over six months during fiscal
1994, and to a lesser extent, Ichabod's Lounge, which was acquired in the
Acquisition, which also had a full year of operations during fiscal 1995 as
compared to three months in fiscal 1994.
COSTS AND EXPENSES. Total costs and expenses were $72.6 million for the
fiscal year ended June 30, 1995, an increase of $31.9 million or 78.5% from
$40.7 million for the fiscal year ended June 30, 1994.
Costs and expenses of casino operations were $21.5 million for the fiscal
year ended June 30, 1995, an increase of $13.3 million or 162.2% from $8.2
million for the fiscal year ended June 30, 1994. Casino costs and expenses as a
percentage of casino revenue increased to 38.3% during fiscal 1995 from 34.6%
during fiscal year 1994. The increase in casino costs and expenses was
primarily due to a full year of operations at the Colorado Central Station
Casino in fiscal 1995 as compared to just over six months during fiscal 1994,
and to a lesser extent, increased marketing and direct payroll at both of the
Company's casinos.
Costs and expenses of route operations were $15.7 million for the fiscal
year ended June 30, 1995, an increase of $244,000 or 1.6% from $15.4 million for
the fiscal year ended June 30, 1994. Costs and expenses of route operations as
a percentage of route revenue increased to 60.7% during fiscal 1995 from 59.0%
during fiscal 1994.
Costs and expenses of proprietary games operations were $9.9 million for
the fiscal year ended June 30, 1995, an increase of $6.9 million or 226.7% from
$3.0 million for the fiscal year ended June 30, 1994. Proprietary games costs
and expenses as a percentage of proprietary games revenues decreased to 69.6%
during fiscal 1995 from 73.5% during fiscal 1994. The increase in proprietary
games costs and expenses is primarily attributable to the Company's acquired
proprietary games, which operated throughout fiscal 1995 as compared to under
five months during fiscal 1994.
Costs and expenses of food and beverage operations were $1.4 million for
the fiscal year ended June 30, 1995, an increase of $619,000 or 80.6% from
$768,000 for the fiscal year ended June 30, 1994. This increase is primarily
the result of a full year of operations at the Colorado Central Station Casino
during fiscal 1995 as compared to just over six months of operations during
fiscal 1994, and to a lesser extent as a result of a full year of operations
during fiscal 1995 at the
21
<PAGE>
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
acquired Ichabod's Lounge operations as compared to three months of operations
during fiscal 1994. Food and beverage costs and expenses as a percentage of
food and beverage revenue increased to 110.9% during fiscal 1995 from 97.6%
during fiscal 1994.
SG&A expenses were $20.9 million for the fiscal year ended June 30, 1995,
an increase of $10.6 million or 101.9% from $10.5 million for the fiscal year
ended June 30, 1994. SG&A expenses as a percentage of total revenue increased
to 21.5% during fiscal 1995 from 18.9% during fiscal 1994. The increase is
primarily a result of SG&A expenses incurred at the Colorado Central Station
Casino and the Company's acquired proprietary games operations, which both
experienced a full year of operations during fiscal 1995, as compared to
approximately six and five months, respectively, of operations during fiscal
1994. A portion of the increase was also due to increased SG&A expenses
incurred by Anchor as a result of the Company's efforts to expand into new
jurisdictions, as well as holding company costs such as insurance and, to a much
lesser extent, increased SG&A expenses incurred in the Company's route
operations.
The Company incurred $731,000 of preopening costs during fiscal 1994
related to the opening of the Colorado Central Station Casino. There were no
comparable costs during fiscal 1995.
Depreciation and amortization expense was $3.2 million for the fiscal year
ended June 30, 1995, an increase of $1.1 million or 51.6% from $2.1 million for
the fiscal year ended June 30, 1994. This increase is primarily due to
depreciation and amortization expense incurred in the new and acquired
operations commencing during fiscal 1994.
INCOME FROM OPERATIONS. As a result of the factors discussed above, income
from operations was $24.9 million for the fiscal year ended June 30, 1995, an
increase of $10.8 million or 76.1% from $14.1 million for the fiscal year ended
June 30, 1994. As a percentage of total revenues, income from operations
decreased slightly to 25.5% during fiscal 1995 from 25.8% during fiscal 1994.
INTEREST INCOME. Interest income was $1.1 million for the fiscal year
ended June 30, 1995, an increase of $721,000 or 190.0% from $379,000 for the
fiscal year ended June 30, 1994. This increase is due to increased short-term
investments resulting from an increase in working capital.
INTEREST EXPENSE. Interest expense was $732,000 for the fiscal year ended
June 30, 1995, a decrease of $568,000 or 43.6% from $1.3 million for the fiscal
year ended June 30, 1994. This decrease is primarily due to reduced borrowing
subsequent to the IPO.
NET INCOME. As a result of the factors discussed above, net income was
$16.0 million for the fiscal year ended June 30, 1995, an increase of $7.3
million or 83.3% from $8.7 million for the fiscal year ended June 30, 1994
(which includes pro forma adjustments for income taxes as if the Company were a
C Corporation throughout fiscal 1994).
LIQUIDITY AND CAPITAL RESOURCES
Anchor's principal sources of liquidity have been cash flow from operations
and 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 $28.8 million during fiscal 1996 and $23.7
million during fiscal 1995. At June 30, 1996, the Company had cash and cash
equivalents of $78.1 million, working capital of $77.2 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.
In fiscal 1996, the Company spent $27.9 million on capital expenditures,
primarily related to the purchase of gaming devices for use in its proprietary
games operations of approximately $13.1 million. In addition, the Company spent
$12.1 million during fiscal 1996 related to the planned development of a second
casino in Black Hawk, Colorado, primarily for land acquisition, to begin
excavation, and to pay professional fees and expenses. In July 1995, the
Company paid in full a $2.0 million promissory note to a related party that bore
interest at 12% and was originally due June 30, 1998. During fiscal 1996 the
Company repaid $1.2 million of related party debt to Stanley E. Fulton. In
February 1996, the Company paid $5.0 million to extend at current rates its
exclusive space lease agreement with Smith's Food and Drug Centers, Inc., its
largest route customer, for an additional five years through 2010.
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
22
<PAGE>
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
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 March 31, 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 borrowings 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.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standard Board (the "FASB") issued
Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("SFAS 121"). SFAS 121 requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS 121 is effective for
fiscal years beginning after December 15, 1995. Based on management's
preliminary analysis, the Company does not anticipate that the adoption of SFAS
121 will have a material effect on the consolidated financial statements of the
Company.
In October 1995, the FASB issued Statement No. 123 "Accounting for Stock-
Based Compensation" ("SFAS 123"), which establishes financial accounting and
reporting standards for stock-based employee compensation plans and for
transactions in which an entity issued its equity instruments to acquire goods
or services from nonemployees. SFAS 123 is generally effective for fiscal years
beginning after December 15, 1995. The Company intends to provide the pro forma
and other additional disclosures about the stock-based employee plans in its
fiscal 1997 financial statements as required by SFAS 123.
23
<PAGE>
ITEM 8
<TABLE>
<CAPTION>
June 30,
ANCHOR GAMING (Note 1) ----------------------------
CONSOLIDATED BALANCE SHEETS 1996 1995
- - ---------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 2) $ 78,112,530 $26,132,411
Accounts receivable, net (Note 2) 4,720,689 3,023,638
Current portion of notes receivable, net (Notes 3 and 9) 881,173 902,360
Inventory (Note 2) 3,197,955 2,355,190
Prepaid expenses 1,739,263 1,633,494
Other current assets 300,761 196,485
------------ -----------
Total current assets 88,952,371 34,243,578
Property and equipment, net (Notes 2, 4, 6 and 7) 57,776,237 33,071,100
Long-term notes receivable, net (Notes 3 and 9) 311,856 1,123,733
Intangible assets, net (Notes 2 and 5) 2,054,710 2,185,799
Deposits and other (Note 11) 13,216,623 8,641,762
------------ -----------
Total assets $162,311,797 $79,265,972
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion, long-term notes payable (Note 6) $ 100,000 $ --
Accounts payable 4,574,213 1,810,893
Accrued salaries, wages and vacation pay 2,488,014 2,107,966
Income tax payable (Note 10) 281,886 1,016,204
Other current liabilities (Note 6) 3,530,130 2,767,340
------------ -----------
Total current liabilities 10,974,243 7,702,403
Long-term notes payable, principal stockholder (Note 6) 2,800,000 3,989,447
Long-term notes payable, related party (Notes 6 and 9) -- 2,000,000
Long-term notes payable, net of current portion (Note 6) 850,000
Other long-term liabilities (Note 10) 707,318 287,390
Minority interest in consolidated subsidiary (Note 1) 672,955 455,162
------------ -----------
Total liabilities and minority interest in
consolidated subsidiary 16,004,516 14,434,402
------------ -----------
Commitments and contingencies (Note 11) -- --
Stockholders' equity: (Note 8)
Common stock, $.01 par value, 25,000,000 shares
authorized; 13,474,150 issued and 13,283,382
outstanding at June 30, 1996, 11,505,550 issued and
11,341,761 outstanding at June 30, 1995 134,742 115,056
Additional paid-in capital 104,448,080 44,031,099
Treasury stock at cost, 190,768 shares at June 30, 1996,
163,789 shares at June 30, 1995 (3,095,830) (1,799,830)
Retained earnings 44,820,289 22,485,245
------------ -----------
Total stockholders' equity 146,307,281 64,831,570
------------ -----------
Total liabilities and stockholders' equity $162,311,797 $79,265,972
------------ -----------
------------ -----------
</TABLE>
See notes to consolidated financial statements.
24
<PAGE>
ITEM 8
<TABLE>
<CAPTION>
Years Ended June 30,
ANCHOR GAMING (Note 1) -----------------------------------------
CONSOLIDATED STATEMENTS OF INCOME 1996 1995 1994
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues: (Notes 2 and 9)
Casino operations $ 65,125,194 $56,183,629 $23,712,892
Route operations (Note 12) 28,650,989 25,818,170 26,122,527
Proprietary games 21,457,135 14,158,737 4,147,469
Food and beverage 1,233,003 1,250,593 786,151
------------ ----------- -----------
Total revenues 116,466,321 97,411,129 54,769,039
------------ ----------- -----------
Costs and expenses: (Notes 2 and 9)
Casino operations 26,830,475 21,500,172 8,199,498
Route operations 17,158,172 15,659,336 15,415,671
Proprietary games operations 12,113,595 9,850,963 3,047,152
Food and beverage operations 1,300,012 1,386,438 767,602
Selling, general and administrative 21,073,631 20,949,047 10,374,811
Pre-opening costs (Note 2) -- -- 731,009
Depreciation and amortization (Note 2) 4,109,835 3,215,017 2,121,042
------------ ----------- -----------
Total costs and expenses 82,585,720 72,560,973 40,656,785
------------ ----------- -----------
Income from operations 33,880,601 24,850,156 14,112,254
------------ ----------- -----------
Other income (expense):
Interest income 2,028,347 1,105,212 379,194
Interest expense, net (Notes 4 and 6) (428,991) (731,954) (1,314,271)
Other income (Note 9) 260,439 405,831 346,245
Minority interest in earnings of consolidated
subsidiary (217,793) (162,262) (102,230)
------------ ----------- -----------
Total other income (expense) 1,642,002 616,827 (691,062)
------------ ----------- -----------
Income before provision for income taxes 35,522,603 25,466,983 13,421,192
Income tax provision (Notes 2 and 10) 13,187,559 9,486,451 2,927,820
------------ ----------- -----------
Net income $ 22,335,044 $15,980,532 $10,493,372
------------ ----------- -----------
------------ ----------- -----------
Pro forma (unaudited): (Notes 1 and 2)
Income before provision for income taxes 13,421,192
Pro forma and historical provision for income taxes 4,702,320
-----------
Pro forma net income 8,718,872
-----------
Weighted average common and common equivalent
shares outstanding 12,153,419 11,446,646 8,480,649
------------ ----------- -----------
------------ ----------- -----------
Pro forma earnings per common and common equivalent
share (Note 2) $ 1.84 $ 1.40 $ 1.03
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
See notes to consolidated financial statements.
25
<PAGE>
ITEM 8
ANCHOR GAMING (NOTE 1)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL
COMMON STOCK TREASURY STOCK IN EXCESS RETAINED
SHARES AMOUNT SHARES AMOUNT OF PAR EARNINGS TOTAL
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - July 1, 1993 6,458,750 $ 64,587 -- $ -- $ 1,035,413 $ 2,740,456 $ 3,840,456
Shares issued for acquired
companies 1,298,000 12,980 1,623,316 1,636,296
Shares issued in public
offering 3,162,500 31,625 34,095,589 34,127,214
Reduction of minority
interest % 73,750 738 822,312 30,885 853,935
S corporation distributions (6,760,000) (6,760,000)
Treasury stock purchased (163,789) (1,799,830) (1,799,830)
Stock issued in satisfaction
of notes payable 384,100 3,841 4,605,359 4,609,200
Net income 10,493,372 10,493,372
---------- -------- --------- ----------- ------------ ----------- ------------
Balance - June 30, 1994 11,377,100 113,771 (163,789) (1,799,830) 42,181,989 6,504,713 47,000,643
Stock issued for exercise
of options 128,450 1,285 1,544,615 1,545,900
Tax effects of stock option
transactions 304,495 304,495
Net income 15,980,532 15,980,532
---------- -------- --------- ----------- ------------ ----------- ------------
Balance - June 30, 1995 11,505,550 115,056 (163,789) (1,799,830) 44,031,099 22,485,245 64,831,570
Stock issued for exercise of
warrants and options 418,600 4,186 (26,979) (1,296,000) 5,694,414 4,402,600
Shares issued in public
offering 1,550,000 15,500 53,859,015 53,874,515
Tax effects of stock
option transactions 863,552 863,552
Net income 22,335,044 22,335,044
---------- -------- --------- ----------- ------------ ----------- ------------
Balance - June 30, 1996 13,474,150 $134,742 (190,768) $(3,095,830) $104,448,080 $44,820,289 $146,307,281
---------- -------- --------- ----------- ------------ ----------- ------------
---------- -------- --------- ----------- ------------ ----------- ------------
</TABLE>
See notes to consolidated financial statements.
26
<PAGE>
ITEM 8
<TABLE>
<CAPTION>
Years Ended June 30,
ANCHOR GAMING (Note 1) -----------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS 1996 1995 1994
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Income $22,335,044 $15,980,532 $ 10,493,372
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on disposal of assets -- (140,022) (225,697)
Depreciation and amortization 4,085,573 3,337,356 2,254,266
Provision for doubtful accounts and notes 105,000 10,000 79,640
Minority interest in earnings of consolidated subsidiary 217,793 162,262 102,230
(Increase) decrease in assets:
Accounts receivable (1,802,054) (1,206,323) (1,475,062)
Inventory (842,765) (472,432) (1,800,224)
Other current assets 34,772 836,890 282,961
Prepaid expenses (105,769) 40,788 (926,373)
Deposits and other assets 58,925 1,490,739 (269,003)
Increase (decrease) in liabilities:
Accounts payable 2,763,320 828,756 753,770
Accrued salaries, wages and vacation pay 380,048 593,835 1,092,054
Income tax payable 776,683 1,173,316 --
Other liabilities 762,794 1,015,529 1,790,010
----------- ----------- ------------
Total adjustments 6,434,320 7,670,694 1,658,572
----------- ----------- ------------
Net cash provided by operating activities 28,769,364 23,651,226 12,151,944
----------- ----------- ------------
Cash flows from investing activities:
Acquisition and construction of property and equipment (27,916,341) (7,834,258) (14,428,302)
Expenditures for intangible assets (274,013) (250,000) (276,543)
Proceeds from sale of equipment 530,377 514,166 263,341
Issuance of notes receivable (114,614) (252,557) (2,691,623)
Principal reductions on notes receivable 947,678 973,243 510,445
Payments to extend operating leases (5,000,000) (1,750,000) --
Payment for acquisition of Global, net of cash acquired -- -- (27,284)
----------- ----------- ------------
Net cash used in investing activities (31,826,913) (8,599,406) (16,649,966)
----------- ----------- ------------
Cash flows from financing activities:
Net proceeds from sale of stock and warrants 58,277,115 1,545,900 34,127,214
Proceeds from sale of subsidiary stock -- -- 210,090
Payments to purchase treasury stock -- -- (1,799,830)
Proceeds from line of credit -- -- 5,000,000
Loans from related parties -- -- 3,974,506
Principal payments on loans from related parties (3,189,447) (937,393) (15,964,910)
Principal payments on line of credit and other loans (50,000) -- (9,130,680)
Payments made on contracts payable and for loan fees -- -- (3,568,059)
Distributions to S corporation stockholders -- -- (1,750,000)
----------- ----------- ------------
Net cash provided by financing activities 55,037,668 608,507 11,098,331
----------- ----------- ------------
Net increase in cash and cash equivalents 51,980,119 15,660,327 6,600,309
Cash and cash equivalents, beginning of period 26,132,411 10,472,084 3,871,775
Cash and cash equivalents, end of period $78,112,530 $26,132,411 $ 10,472,084
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
(continued)
27
<PAGE>
ITEM 8
<TABLE>
<CAPTION>
ANCHOR GAMING (Note 1) Years Ended June 30,
CONSOLIDATED STATEMENTS OF CASH FLOWS -----------------------------------------
(CONTINUED) 1996 1995 1994
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for interest, net of amounts capitalized $ 392,643 $ 636,602 $ 1,349,383
----------- ----------- ------------
----------- ----------- ------------
Cash paid for income taxes $12,404,763 $ 7,710,000 $ 3,894,308
----------- ----------- ------------
----------- ----------- ------------
Supplemental schedule of noncash investing and
financing transactions:
Stock issued for warrants in cashless exercise $ 1,296,000
Issuance of notes payable to S corporation
stockholders as distributions $ 5,010,000
Property and equipment acquired by assuming debt $ 1,000,000 $ 3,493,059
Lease extension cost through issuance of a
promissory note $ 4,000,000
Stock issued through contribution of notes
receivable held by the issuees $ 4,609,200
Acquisition of Global Gaming Products, LLC and Global
Products, Inc. and of certain assets of Global Gaming
Distributors, Inc.:
Fair value of assets acquired, excluding cash acquired $ 2,913,141
Less liabilities assumed (1,249,561)
------------
Net assets recorded $ 1,663,580
Value of common stock issued in acquisition (1,636,296)
------------
Cash paid in acquisition, net of cash acquired $ 27,284
------------
------------
</TABLE>
28
<PAGE>
ITEM 8
ANCHOR GAMING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Anchor Gaming ("Anchor" or the "Company" ) was formed July 28, 1993 to
acquire the operations of 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 Cripple Creek and Black Hawk,
Colorado (collectively the "Subsidiaries").
In February 1994, the Company completed its initial public offering (the
"IPO") of 3,162,500 shares of common stock at a price of $12 per share with net
proceeds to the Company of approximately $34.1 million. Simultaneous with the
closing of the IPO, Anchor became the holding company of the Subsidiaries (the
"Reorganization"), which had been operated under different ownership structures
controlled primarily by Stanley E. Fulton, the Chairman of the Board and Chief
Executive Officer of Anchor. Also at the time of the IPO, the Company acquired
all of the beneficial ownership of Global Gaming Products, L.L.C. and certain
related assets from Global Distributors, Inc. (the "Acquisition"), which were
primarily involved in the distribution of the proprietary game Silver Strike.
Stanley E. Fulton also owned 50% of Global Gaming Products, L.L.C. prior to the
Acquisition. The Reorganization was accounted for by the pooling-of-interests
method due to the common ownership and management control of both the Company
and Subsidiaries since their inception. The Acquisition was accounted for by
the purchase method whereby the cost was allocated based upon the fair market
value of the assets acquired. The accounts of the entities that were acquired
are consolidated in the accompanying financial statements using historical data.
All significant intercompany accounts and transactions have been eliminated.
The consolidated financial statements and other financial data included herein
give retroactive effect to the Reorganization. The financial position and
operating results of Colorado Grande Enterprises, Inc. are included in the
consolidated financial statements as a 66.5% consolidated subsidiary of C.G.
Investments, Inc. through the date of the IPO. Subsequent to the IPO and
simultaneous Reorganization, Anchor beneficially owns 80% of Colorado Grande
Enterprises, Inc.
The fiscal 1994 consolidated financial statements reflect a full year of
results for the Company's Nevada route operation and Colorado Grande Casino.
The Colorado Central Station Casino, which opened December 25, 1993, provided
just over six months of operating results during fiscal 1994. Silver Strike,
which was acquired in the Acquisition, contributed just under five months of
operating results in fiscal 1994.
On April 23, 1996, Anchor completed a secondary offering of 2.3 million
shares of common stock at a price of $37 per share, 1.55 million of these shares
were sold by the Company (the "Secondary Offering") and the remaining 750,000
shares were sold by selling stockholders. Net proceeds from the Secondary
Offering were $53.9 million and are being used to partially fund the estimated
$60.0 million planned development of the Company's second casino in Black Hawk,
Colorado and to purchase proprietary gaming machines, primarily to meet existing
and anticipated demand for the Company's newest game, Wheel of Gold, which the
Company began installing in casinos in December 1995.
29
<PAGE>
ITEM 8
ANCHOR GAMING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments purchased with
maturities of three months or less.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's cash and cash equivalents, trade
receivables and trade payables approximate fair value because of the short
maturities of these instruments. The Company estimates fair value on its long-
term obligations based on quoted market prices or on the current rates offered
to the Company for debt of the same remaining maturities.
INVESTMENTS IN DEBT SECURITIES
The Company's investment securities, along with certain cash and cash
equivalents that are not deemed securities under SFAS 115, are carried on the
consolidated balance sheets in the cash and cash equivalents category.
Management determines the appropriate classification of its investment
securities at the time of purchase as either held-to-maturity, trading or
available for sale and re-evaluates such determination at each balance sheet
date. The Company has classified its investment securities in inventory as of
June 30, 1996 and 1995 as held-to-maturity. Held-to-maturity securities are
required to be carried at amortized cost. The securities classified as held-to-
maturity consist of the following amortized costs at June 30:
1996 1995
-------------- --------------
Debt securities issued by the U.S.
Treasury and other U.S. government
corporations and agencies $ 34,915,000 $ 18,066,000
Repurchase Agreements 30,013,000 -
-------------- --------------
$ 64,928,000 $ 18,066,000
-------------- --------------
-------------- --------------
All securities mature in three months or less from the date of purchase.
The estimated fair value of the Company's portfolio of investment securities at
June 30, 1996 and 1995 closely approximated amortized cost.
ACCOUNTS RECEIVABLE
Accounts receivable result from the sale of products and services to gaming
properties primarily in the United States. The Company performs credit
evaluations of its customers and do not require collateral. Management reviews
customer balances for potential credit losses and maintains an allowance for
amounts deemed uncollectible. The amounts reserved at June 30, 1996 and 1995
were $278,821 and $80,821, respectively.
INVENTORY
Inventories consist of silver and silver tokens, parts for gaming machines,
and food and beverage items. Silver inventory of $1,092,671 and $642,451 at
June 30, 1996 and 1995, 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.
30
<PAGE>
ITEM 8
ANCHOR GAMING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PROPERTY & EQUIPMENT
Property and equipment are recorded at cost. Ordinary maintenance and
repairs are charged to expense as incurred. Costs that materially increase the
life or value of existing assets are capitalized. Assets that have been placed
in service are depreciated over their estimated useful lives or amortized over
lease terms using either straight-line or accelerated methods. Estimated useful
lives for furniture and equipment are 5 to 7 years, for leasehold improvements
are 4 1/2 years to 31 1/2 years and for buildings and improvements are 30 years.
INTANGIBLE ASSETS
Intangible assets include goodwill of approximately $620,000 associated
with the Acquisition that is amortized on a straight-line basis over 10 years.
Intangible assets also include amounts paid to acquire leases for route
locations and casino property, amounts to acquire route participation
agreements, costs of patents issued and organization costs. These amounts are
amortized on a straight-line basis over the lives of the leases or agreements
ranging from 1 to 15 years.
PRE-OPENING COSTS
Pre-opening costs in the aggregate amount of $731,009 incurred in
connection with the Colorado Central Station Casino, which were limited to
direct incremental costs of the casino's opening, were charged to expense as of
December 25, 1993, the date the casino opened.
REVENUE RECOGNITION
In accordance with industry practice, the Company recognized gaming
revenues as the net win from gaming operations, which is the difference
between amounts wagered by customers and payments to customers. Proprietary
Games revenue is derived from royalty, revenue participation or other similar
short-term recurring revenue arrangements.
Revenues exclude the retail value of complimentary food and beverage
furnished gratuitously to customers. The estimated departmental costs of
providing such goods and services as included in casino expense are $1,162,495,
$822,467 and $291,581 for the years ended June 30, 1996, 1995 and 1994,
respectively.
EARNINGS PER SHARE
Earnings per share on the income statement is computed by dividing net
income after adjustment for historical and pro forma income tax provisions by
the weighted average number of common and common equivalent shares outstanding
as if the Reorganization took place on July 1, 1993. Common equivalent shares
include the effect of shares issuable upon the exercise of warrants and stock
options. The number of common and common equivalent shares used in the
computation of earnings per share was 12,153,419, 11,446,646, and 8,480,649 for
the years ended June 30, 1996, 1995, and 1994, respectively. Fully diluted
earnings per share amounts are substantially the same as primary per share
amounts for the periods presented.
INCOME TAXES
Prior to the Offering, Anchor Coin, DD Stud and CGI (collectively, the "S
Companies") had elected to be treated as S corporations for federal income tax
purposes. Concurrently with the Offering and the Reorganization, the S
corporation elections were terminated. Accordingly, federal income tax
liability on net income of the S Companies through February 4, 1994 has been
treated as the liability of its stockholders.
For the year ended June 30, 1994, the provision for income taxes is based
upon the separate operating results of Colorado Grande, a corporate entity that
is subject to income taxes, and the operating results of the S Companies from
February 5, 1994 through June 30, 1994. The
31
<PAGE>
ITEM 8
ANCHOR GAMING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
accompanying consolidated statements of income include unaudited pro forma
income tax adjustments which reflect the estimated income tax expense of the
Company as if all of its net income had been subject to corporate level federal
and state income taxes for the periods presented.
ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standard Board (the "FASB") issued
Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("SFAS 121"). SFAS 121 requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS 121 is effective for
fiscal years beginning after December 15, 1995. Based on management's
preliminary analysis, the Company does not anticipate that the adoption of SFAS
121 will have a material effect on the consolidated financial statements of the
Company.
In October 1995, the FASB issued Statement No. 123 "Accounting for Stock-
Based Compensation" ("SFAS 123"), which establishes financial accounting and
reporting standards for stock-based employee compensation plans and for
transactions in which an entity issued its equity instruments to acquire goods
or services from nonemployees. SFAS 123 is generally effective for fiscal years
beginning after December 15, 1995. The Company intends to provide the pro forma
and other additional disclosures about the stock-based employee plans in its
fiscal 1997 financial statements as required by SFAS 123.
3. NOTES RECEIVABLE
Notes receivable include a note due from an unaffiliated Nevada gaming
company with route operations in Louisiana with interest at the prime rate
(8.25% at June 30, 1996) plus a percentage of net cash flow (as defined in the
loan documents), notes due from an unaffiliated gaming company and its
stockholders for business development at the prime rate and notes due from
various slot route location owners with interest rates ranging from 8% to 12% to
be paid over periods ranging from three months to 7 years. Notes receivable
consist of the following at June 30:
1996 1995
-------------- --------------
Loans to unaffiliated gaming companies $ 1,418,338 $ 2,116,591
Location loans for operating rights 662,918 479,047
Loans to related parties 27,142 272,602
-------------- --------------
2,108,398 2,868,240
Less allowance for doubtful accounts 915,369 842,147
-------------- --------------
1,193,029 2,026,093
-------------- --------------
Less current portion:
Loans to unaffiliated gaming companies 829,315 779,158
Location loans for operating rights 24,716 91,253
Loans to related parties 27,142 31,949
-------------- --------------
Notes receivable, current 881,173 902,360
-------------- --------------
Long-term notes receivable, net $ 311,856 $ 1,123,733
-------------- --------------
-------------- --------------
Loans to related parties consist of advances made by the Company to a slot route
location owned by the majority stockholder of the Company, which were converted
to a note receivable. The majority stockholder sold the location to an
unaffiliated party in January 1996. A majority of the note balance was assumed
by the new owner. The remaining balance of $27,142 at June 30, 1996 due on the
note by the majority stockholder was paid in full on July 11, 1996.
32
<PAGE>
ITEM 8
ANCHOR GAMING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4 . PROPERTY AND EQUIPMENT
Property and equipment consist of the following at June 30:
1996 1995
-------------- --------------
Land and improvements $ 14,725,645 $ 6,030,812
Buildings and improvements 11,326,850 11,318,970
Gaming equipment 30,276,982 15,634,106
Furniture, fixtures and equipment 3,953,544 3,115,294
Leasehold improvement 3,657,726 3,396,294
Construction in progress 3,362,235 -
-------------- --------------
67,302,982 39,495,476
Less accumulated depreciation 9,526,745 6,424,376
-------------- --------------
Total $ 57,776,237 $ 33,071,100
-------------- --------------
-------------- --------------
Interest costs incurred during the construction period on the Colorado
Central Station Casino and the Colorado Grande Casino were capitalized as part
of the cost of the related assets. Total interest incurred during the years
ended June 30, 1996, 1995 and 1994 was $428,991, $731,954 and $1,799,234,
respectively, of which $0, $0 and $484,963, respectively, was capitalized.
5. INTANGIBLE ASSETS
Intangible assets consist of the following at June 30:
1996 1995
-------------- --------------
Lease acquisition costs $ 2,085,857 $ 2,315,488
Goodwill 1,134,865 1,134,865
Patents 98,595 98,595
Organization costs and other 221,310 204,520
-------------- --------------
3,540,627 3,753,468
Less accumulated amortization 1,485,917 1,567,669
-------------- --------------
Total $ 2,054,710 $ 2,185,799
-------------- --------------
-------------- --------------
33
<PAGE>
ITEM 8
ANCHOR GAMING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. NOTES PAYABLE
Notes payable consist of the following at June 30:
1996 1995
-------------- --------------
Principal Stockholder
Unsecured notes payable to
principal stockholder, interest
at 8%, due July 1, 1997(a) $ 2,300,000 $ 2,300,000
Unsecured note payable to principal
stockholder, interest at 10%, due
July 1, 1996 - 1,189,447
Unsecured note payable to principal
stockholder, interest at 8%, due
July 1, 1998 500,000 500,000
-------------- --------------
Long-term notes payable, principal
stockholder $ 2,800,000 $ 3,989,447
-------------- --------------
-------------- --------------
RELATED PARTY
Unsecured note payable to a
relative of certain minority
stockholders, interest at 12%,
due June 30, 1998 $ - $ 2,000,000
-------------- --------------
-------------- --------------
OTHER
Note payable secured by land,
interest at 6%, due in 120 equal
monthly principal installments plus
interest, final payment due
December 2005 $ 950,000 $ -
Less current portion 100,000 -
-------------- --------------
Long-term portion $ 850,000 $ -
-------------- --------------
-------------- --------------
(a) At June 30, 1995, the stockholder amended the terms of the notes to be due
July 1, 1997.
Maturities of the Company's notes payable are:
Year ending June 30,
1997 $ 100,000
1998 2,400,000
1999 600,000
2000 100,000
2001 100,000
Thereafter 450,000
--------------
Total $ 3,750,000
--------------
--------------
Notes payable to the principal stockholder and related party resulted in
interest expense of $289,373, $623,060 and $804,590 for the years ended June 30,
1996, 1995 and 1994, respectively, and accrued interest payable of $18,400 at
June 30, 1996 and $48,429 at June 30, 1995.
34
<PAGE>
ITEM 8
ANCHOR GAMING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. OTHER DEBT
In June 1994, the Company entered into a $20 million revolving line of
credit with a bank (the "Bank Revolver"), expiring 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 Company paid a one time
$75,000 loan fee upon closing and is subject to a 3/8% unused commitment fee.
The Bank Revolver 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 credit
facility and has agreed to maintain certain financial and non-financial
covenants common to lending arrangements of this type. Financial covenants
include maintenance of minimum cash and cash equivalent balances, tangible net
worth, annual EBITDA, and maximum funded debt to EBITDA ratio. The covenants
also restrict payment of cash dividends. The Company has remained in compliance
with the covenants throughout the term of the credit facility. As of June 30,
1996, the Company had not utilized the Bank Revolver.
8. OPTIONS AND WARRANTS
As of June 30, 1996, 1,035,000 shares of common stock were reserved for
issuance upon exercise of employee and director stock options. Employee and
director options to purchase 960,500 shares at the fair market value at the
grant date have been granted as of June 30, 1996. As of June 30, 1996, options
to purchase 297,050 shares had been exercised. Of the 960,500 options, 100,000
vest in equal quarterly increments over two years, 93,000 vest in equal annual
increments over five years, 50,000 vest in a single installment six months after
issuance, 20,000 vest in decreasing annual increments over five years, 250,000
vest in varying increments and periods over five years, 38,000 vest at the end
of three years and the remainder vest in equal quarterly increments over five
years.
An additional 40,000 shares are reserved for issuance upon exercise of
vested options at the initial public offering price that were granted to a
relative of certain minority stockholders (none of which were exercised at June
30, 1996), and 250,000 shares are reserved for issuance upon exercise of vested
warrants granted to the managing underwriters of the IPO (and their designees)
exercisable at 120% of the IPO price, all of which were exercised at June 30,
1996.
Number of Option Price
Shares Per Share
------------ ----------------
Outstanding at July 1, 1994 954,500 $12.00 - $14.75
Granted 8,000 $15.75 - $17.75
Cancelled (13,750) $12.00
Exercised (128,450) $12.00 - $13.125
------------
Outstanding at June 30, 1995 820,300 $12.00 - $17.75
Granted 288,000 $21.75 - $46.88
Cancelled (19,000) $12.00
Exercised (418,600) $12.00 - $17.75
------------
Outstanding at June 30, 1996 670,700 $12.00 - $21.75
------------
------------
Exercisable at June 30, 1996 148,050 $12.00 - $17.00
------------
------------
9. OTHER RELATED PARTY TRANSACTIONS
A relative of the minority stockholders loaned $2.0 million to the Company
in June 1993 for use in connection with construction of the Colorado Central
Station Casino. The principal amount of this loan was payable in a single
instalment in 1998 and bore interest at 12% payable
35
<PAGE>
ITEM 8
ANCHOR GAMING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
monthly. As additional consideration for this loan, the Company granted an
option to purchase 40,000 shares of common stock at the IPO price. The
principal stockholder of the Company personally guaranteed this loan. This loan
was paid in full on July 6, 1995.
The principal stockholder of the Company owned 100% of the common stock of
an Anchor Gaming slot route location. On January 31, 1996, the principal
stockholder sold the location to an unaffiliated third party. For providing the
gaming machines and slot route services, the Company received a percentage of
the net win of the location similar to other route locations. The Company held
a note receivable from the location in the amount of $284,704 at January 31,
1996 of which $257,562 was assumed by the new owner. The remaining balance of
the loan due from the principal stockholder at June 30, 1996 of $27,142 was paid
in full on July 11, 1996. The location, under the ownership of the principal
stockholder, accounted for $180,822, $295,502 and $322,484 of gaming revenue
during the years ended June 30, 1996, 1995 and 1994, respectively and $145,684,
$279,059 and $293,913 of route costs during the years ended June 30, 1996, 1995
and 1994, respectively.
Prior to the Acquisition during fiscal 1994, the Company paid Global
Distributors $135,000 in exchange for managing the Company's gaming route in
Northern Nevada. Also prior to the acquisition, Global Distributors marketed
and distributed the Company's proprietary games Double Down Stud and Players
Choice 21 under a nonexclusive distribution agreement that was terminated upon
the acquisition. Anchor Gaming paid Global Distributors $11,760 per month under
this agreement plus an additional commission of 20% of revenue in excess of
$300,000 derived from new business developed during any prior 12 month period
from Double Down Stud and Players Choice 21. During fiscal year 1994, the
Company paid approximately $71,000 to Global Distributors for distribution of
its proprietary games. Global Distributors also owned the tavern acquired in
the Acquisition.
In August 1996, the Company made certain payments to an entity controlled by an
employee of the Company. These funds were used to repay a debt of $500,000 owed
by the employee and his affiliate to Stanley E. Fulton.
10. INCOME TAXES
The provision (benefit) for income taxes for the years ended June 30, 1996,
1995 and 1994 are as follows:
1996 1995 1994
------------- ------------- -------------
Currently payable per
tax return:
Federal $ 11,750,029 $ 8,976,859 $ 3,062,796
State 846,278 474,051 328,400
-------------- -------------- -------------
12,596,307 9,450,910 3,391,196
-------------- -------------- -------------
Deferred:
Federal 579,569 (381,402) (435,560)
State 11,683 416,943 (27,816)
-------------- -------------- -------------
591,252 35,541 (463,376)
-------------- -------------- -------------
Total $ 13,187,559 $ 9,486,451 $ 2,927,820
-------------- -------------- -------------
-------------- -------------- -------------
The historical provision for income taxes differs from the amount of income
tax determined by applying the applicable U.S. statutory federal income tax rate
to pre-tax income from continuing operations as a result of the following
differences:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------- -------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Statutory U.S. tax rate $ 12,432,911 35.0% $ 8,913,449 35.0% $ 4,697,417 35.0%
Increase (decrease) in tax resulting from:
S corporation income
taxed at stockholder level (1,801,603) (13.4)
State income taxes, net of
federal tax effect 557,674 1.6 579,147 2.3 195,380 1.5
Other, net 196,974 .5 (6,145) ( .1) (1,801,603) (13.4)
------------- --------- ------------- --------- ------------- -------
Actual provision for income taxes $ 13,187,559 37.1% $ 9,486,451 37.2% $ 2,927,820 21.8%
------------- --------- ------------- --------- ------------- ------
------------- --------- ------------- --------- ------------- ------
</TABLE>
36
<PAGE>
ITEM 8
ANCHOR GAMING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Statement of Financial Accounting Standards ("SFAS") No. 109 "Accounting
for Income Taxes" requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
included in the financial statements or income tax returns. Deferred income
taxes included in other current assets, deposits and other, and other long-term
liabilities on the balance sheet reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, and (b)
operating loss and tax credit carryforwards. The tax items comprising the
Company's net deferred tax asset as of June 30, 1996 and 1995 are as follows:
1996 1995
------------ ------------
Deferred tax assets:
Receivable reserve $ 478,000 $ 367,000
Pre-opening expenditures 140,000 177,000
Reserves not currently deductible 229,000 175,000
------------ ------------
847,000 719,000
Deferred tax liabilities:
Difference between book and tax
basis of property (1,038,000) (319,000)
------------ ------------
Net deferred tax asset (liability) $ (191,000) $ 400,000
------------ ------------
------------ ------------
11. COMMITMENTS AND CONTINGENCIES
NON-CANCELABLE OPERATING LEASES:
The Company leases parking lot space, office space, casino space and slot
route locations under non-cancelable operating leases. The original terms of
the leases range from 3 to 15 years with various renewal options from 1 to 15
years.
The casino space lease has contingent rentals based on gaming revenues of
the casino occupying the space. The lease provides for a monthly payment of the
greater of a base amount of $12,000 or 5% of adjusted gross gaming revenue, with
a payment ceiling of $400,000 per year. Contingent rentals paid above base
amounts were $184,312, $100,898 and $51,518 for the years ended June 30, 1996,
1995 and 1994, respectively.
Future minimum rentals under non-cancelable operating leases at June 30,
1996 are:
Year ending June 30,
1997 $ 9,641,000
1998 9,617,000
1999 9,517,000
2000 7,066,000
2001 7,014,000
Thereafter 55,858,000
-------------
$ 98,713,000
-------------
-------------
Operating lease rental expense was $9,539,000, $7,706,000 and $7,247,000
for the years ended June 30, 1996, 1995 and 1994, respectively.
Included in deposits at June 30, 1996 and 1995 is a space lease deposit of
$3,300,000 which is held by the lessor of several slot route locations pursuant
to an agreement which provides that the deposit, or any portion thereof, may, at
the option of the Company, be applied against rents owing during the last two
years of the lease agreement. Also included in deposits are payments totaling
$10,750,000 to this lessor to extend the lease term for these locations through
the year 2010. The lease extension payments are amortized to rent expense on a
straight-line basis over the remaining term of the lease. The Company's slot
route operations at locations leased from this lessor accounted for more than
10% of Anchor Gaming's total revenues for the years ended June 30, 1996, 1995
and 1994.
37
<PAGE>
ITEM 8
ANCHOR GAMING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GAMING REGULATIONS
The Company is subject to the licensing and regulatory requirements of the
Nevada State Gaming Control Board, Nevada Gaming Commission and the Colorado
Limited Gaming Control Commission. The Company's gaming licenses are subject to
certain conditions and periodic renewal. Management believes that the
conditions will continue to be satisfied and that subsequent license renewals
will be granted.
ENVIRONMENTAL MATTERS
The Colorado Central Station Casino is located in an area that has been
designated by the Environmental Protection Agency ("EPA") as a superfund site
on the National Priorities List, known as the Central City-Clear Creek Superfund
Site (the "Site") as a result of contamination from historic mining activity in
the area. The EPA is entitled to proceed against owners and operators of
properties located within the Site for remediation and response costs associated
with their properties and with the entire Site. The casino is located within
the drainage basin of North Clear Creek and is therefore subjected to
potentially contaminated surface and ground water from upstream mining-related
sources. Soil and ground water samples on the site indicate that several
contaminants exist in concentrations exceeding drinking water standards.
Records relating to historical uses of the site are uncertain as to whether
mining actually occurred below the Company's property. Records do indicate that
an ore loading dock for a railroad depot was once located on an adjacent site,
and railroad tracks were present on the Company's property.
Before the time of the IPO, the Company entered into an administrative
consent order with the EPA pursuant to which the Company agreed to pipe mine
discharge water across the Company's property (the Company is not required to
treat this water), allowing the Company to dewater a wetlands area on the
northeast corner of the site, and requiring the Company to recreate the wetlands
in an alternative location. The Company has paid a total of $250,000 into
escrow with the EPA and the Colorado Department of Health to cover the estimated
costs of this activity. Through June 30, 1996, the EPA has released $219,000 of
the escrowed funds to the Company. No further remedial activity has been
required other than the recreation of the wetland. The prior owner of the
property, on which a casino expansion is currently planned, has removed
contaminated soils with the EPA's approval. The Company does not expect the
planned expansion to result in the generation of hazardous wastes or in any
material environmental expenditures.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with nine executives and
top management personnel. The agreements vary in starting date and are for
periods ranging from two to five years. Agreements with aggregate annual
salaries of $1,555,000 are terminable at the Company's option with 90 days to
one year severance pay.
LITIGATION
The Company is party to several routine lawsuits arising from normal
operations. Management does not believe that the outcome of such litigation in
the aggregate will have a material adverse effect on the financial position or
the results of operations of the Company.
PURCHASE COMMITMENTS
At June 30, 1996, the Company had entered into various purchase agreements
to purchase gaming equipment for approximately $5,747,000.
38
<PAGE>
ITEM 8
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Anchor Gaming and Subsidiaries
We have audited the accompanying consolidated balance sheets of Anchor Gaming
and subsidiaries (the "Company") as of June 30, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended June 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at June 30, 1996 and
1995, and the results of its operations and its cash flows for each of the three
years in the period ended June 30, 1996 in conformity with generally accepted
accounting principles.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
August 1, 1996
<PAGE>
Exhibit 21.1
<PAGE>
LIST OF SUBSIDIARIES
Anchor Coin
DD Stud, Inc.
C. G. Investments, Inc.
Colorado Grande Enterprises, Inc.*
Green Mountain Enterprises, Inc.
* Colorado Grande Enterprises, Inc. is 80% controlled by Anchor Gaming.
Approximately 50% of this subsidiary is held through C.G. Investments, Inc.
and the remaining 30% is held by Anchor Gaming.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 78,112,530
<SECURITIES> 0
<RECEIVABLES> 5,601,862
<ALLOWANCES> 0
<INVENTORY> 3,197,955
<CURRENT-ASSETS> 88,952,371
<PP&E> 67,302,982
<DEPRECIATION> 9,526,745
<TOTAL-ASSETS> 162,311,797
<CURRENT-LIABILITIES> 10,974,243
<BONDS> 5,030,273
0
0
<COMMON> 134,742
<OTHER-SE> 146,172,539
<TOTAL-LIABILITY-AND-EQUITY> 162,311,797
<SALES> 0
<TOTAL-REVENUES> 116,466,321
<CGS> 0
<TOTAL-COSTS> 57,402,254
<OTHER-EXPENSES> 23,112,473
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 428,991
<INCOME-PRETAX> 35,522,603
<INCOME-TAX> 13,187,559
<INCOME-CONTINUING> 22,335,044
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,335,044
<EPS-PRIMARY> 1.84
<EPS-DILUTED> 0
</TABLE>
