<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ____________
Commission file number 000-23124
ANCHOR GAMING
(Exact name of registrant as specified in its charter)
NEVADA 88-0304253
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
815 PILOT ROAD, SUITE G
LAS VEGAS, NEVADA
89119
(Address of principal executive offices)
(Zip Code)
(702) 896-7568
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes / X / No _____
Shares outstanding of each of the registrant's classes of common stock as of
February 12, 1998:
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CLASS OUTSTANDING AS OF FEBRUARY 12, 1998
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<S> <C>
Common stock, $.01 par value 12,525,132
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ANCHOR GAMING
FORM 10-Q
QUARTER ENDED DECEMBER 31, 1997
INDEX
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PAGE NO.
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Part I. Financial Information
Item 1. Consolidated Condensed Financial Statements
Consolidated Condensed Balance Sheets at
December 31, 1997 and June 30, 1997 (unaudited) 3
Consolidated Condensed Statements of
Income for the three months ended
December 31, 1997 and 1996 (unaudited) 4
Consolidated Condensed Statements of
Income for the six months ended
December 31, 1997 and 1996 (unaudited) 5
Consolidated Condensed Statements of Cash
Flows for the six months ended December 31, 1997
and 1996 (unaudited) 6
Notes to Consolidated Condensed Financial Statements
(unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
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<CAPTION>
ANCHOR GAMING
CONSOLIDATED CONDENSED DECEMBER 31, JUNE 30,
BALANCE SHEETS (UNAUDITED) 1997 1997
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 40,138,666 $ 66,427,369
Accounts receivable, net 7,617,216 6,358,052
Inventory 1,403,038 3,196,918
Prepaid expenses 1,658,818 1,835,913
Other current assets 499,733 445,799
------------ ------------
Total current assets 51,317,471 78,264,051
Property and equipment, net 95,979,128 85,033,436
Long-term notes receivable, net 2,471,299 1,543,159
Intangible assets, net 2,009,425 2,128,306
Investments in unconsolidated affiliates 28,969,485 7,570,712
Deposits and other 14,271,143 14,336,705
------------ ------------
Total assets $195,017,951 $188,876,369
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,168,320 $ 2,663,156
Accrued salaries, wages and vacation pay 2,144,284 2,712,764
Income tax payable 347,479 2,138,934
Other current liabilities 8,489,065 6,103,394
------------ ------------
Total current liabilities 19,149,148 13,618,248
Long-term notes payable, principal stockholder 2,800,000 2,800,000
Other long-term liabilities 71,841 143,691
Minority interest in consolidated subsidiary 1,198,827 983,562
------------ ------------
Total liabilities and minority interest in
consolidated subsidiary 23,219,816 17,545,501
------------ ------------
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized;
0 shares issued and outstanding at December 31, 1997 and
June 30, 1997 - -
Common stock, $.01 par value, 50,000,000 shares authorized;
13,690,275 issued and 12,525,132 outstanding at December
31, 1997, 13,579,575 issued and 13,052,807 outstanding at
June 30, 1997 136,903 135,796
Additional paid-in capital 111,147,422 107,267,684
Treasury stock at cost, 1,165,143 shares at December 31,
1997 and 526,768 shares at June 30, 1997 (52,731,940) (16,569,329)
Retained earnings 113,245,750 80,496,717
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Total stockholders' equity 171,798,135 171,330,868
------------ ------------
Total liabilities and stockholders' equity $195,017,951 $188,876,369
------------ ------------
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</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements
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<TABLE>
<CAPTION>
ANCHOR GAMING THREE MONTHS ENDED DECEMBER 31,
CONSOLIDATED CONDENSED -------------------------------
STATEMENTS OF INCOME (UNAUDITED) 1997 1996
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<S> <C> <C>
Revenues:
Proprietary games operations $ 26,502,147 $ 10,593,046
Casino operations 18,228,312 16,198,259
Route operations 8,367,801 8,584,340
Other 410,994 279,272
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Total revenues 53,509,254 35,654,917
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Costs and expenses:
Proprietary games 3,109,511 2,773,828
Casino operations 8,017,788 7,138,267
Route operations 5,216,526 5,058,785
Food and beverage 447,647 343,817
Selling, general and administrative 9,173,984 6,133,475
Depreciation and amortization 3,067,579 2,108,444
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Total costs and expenses 29,033,035 23,556,616
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Income from operations 24,476,219 12,098,301
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Other income (expense):
Interest income 842,322 965,329
Interest expense (56,153) (79,832)
Other income 517,954 112,839
Minority interest in earnings of consolidated subsidiary (168,715) (60,831)
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Total other income 1,135,408 937,505
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Income before provision for income taxes 25,611,627 13,035,806
Income tax provision (9,604,360) (4,826,190)
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Net income $ 16,007,267 $ 8,209,616
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Basic earnings per share $ 1.24 $ 0.61
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Weighted average shares outstanding 12,929,309 13,353,057
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Diluted earnings per share $ 1.20 $ 0.60
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Weighted average common and common equivalent
shares outstanding 13,337,979 13,584,048
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</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements
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<TABLE>
<CAPTION>
ANCHOR GAMING SIX MONTHS ENDED DECEMBER 31,
CONSOLIDATED CONDENSED -----------------------------
STATEMENTS OF INCOME (UNAUDITED) 1997 1996
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Revenues:
Proprietary games operations $ 51,469,965 $ 19,805,657
Casino operations 38,275,158 33,784,616
Route operations 17,383,332 16,600,491
Other 862,039 639,985
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Total revenues 107,990,494 70,830,749
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Costs and expenses:
Proprietary games 6,345,704 5,847,976
Casino operations 16,126,180 14,077,532
Route operations 10,604,569 9,838,871
Food and beverage 868,192 740,216
Selling, general and administrative 17,591,616 12,420,903
Depreciation and amortization 5,928,351 3,589,460
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Total costs and expenses 57,464,612 46,514,958
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Income from operations 50,525,882 24,315,791
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Other income (expense):
Interest income 1,665,327 1,976,702
Interest expense (112,847) (176,939)
Other income 670,860 197,771
Minority interest in earnings of consolidated subsidiary (350,769) (164,527)
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Total other income (expense) 1,872,571 1,833,007
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Income before provision for income taxes 52,398,453 26,148,798
Income tax provision (19,649,420) (9,697,586)
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Net income $ 32,749,033 $ 16,451,212
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Basic earnings per share $ 2.53 $ 1.23
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Weighted average shares outstanding 12,949,290 13,339,909
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Diluted earnings per share $ 2.45 $ 1.21
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Weighted average common and common equivalent
shares outstanding 13,351,680 13,588,027
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</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements
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<TABLE>
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ANCHOR GAMING SIX MONTHS ENDED DECEMBER 31,
CONSOLIDATED CONDENSED -------------------------------
STATEMENTS OF CASH FLOWS (UNAUDITED) 1997 1996
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Net cash provided by operating activities $ 26,184,577 $ 22,754,087
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Cash flows from investing activities:
Capital expenditures (16,874,044) (28,693,508)
Expenditures for intangible assets & investments (110,614) (323,955)
Issuance of notes receivable (964,541) (1,242,595)
Principal reductions on notes receivable 49,305 445,895
------------ ------------
Net cash used in investing activities (17,899,894) (29,814,163)
------------ ------------
Cash flows from financing activities:
Net proceeds from sale of stock 1,589,225 830,458
Payments to acquire treasury stock (36,162,611) (950,000)
------------ ------------
Net cash used in financing activities (34,573,386) (119,542)
------------ ------------
Net decrease in cash and cash equivalents (26,288,703) (7,179,618)
Cash and cash equivalents, beginning of period 66,427,369 78,112,530
------------ ------------
Cash and cash equivalents, end of period $ 40,138,666 $ 70,932,912
------------ ------------
------------ ------------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes $ 19,283,454 $ 8,278,975
------------ ------------
------------ ------------
Interest $ 112,540 $ 175,512
------------ ------------
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</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
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ANCHOR GAMING
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated condensed financial statements include the accounts of
Anchor Gaming and its subsidiaries ("the Company" or "Anchor"), 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, in Black Hawk and Cripple Creek, Colorado, and in various other
gaming jurisdictions (collectively the "Subsidiaries"). All significant
intercompany accounts and transactions have been eliminated.
BASIS OF PRESENTATION
In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments necessary to present
fairly the results of its operations for the three-month and six-month
periods ended December 31, 1997 and 1996, its cash flows for the six month
periods ended December 31, 1997 and 1996 and its financial position at
December 31, 1997. These financial statements should be read in conjunction
with the Company's audited consolidated financial statements for the fiscal
year ended June 30, 1997. The operating results and cash flows for the three
months and six months ended December 31, 1997 are not necessarily indicative
of the results that will be achieved in future periods.
INVENTORY
Inventories consist of silver and silver tokens, parts for gaming
machines, and food and beverage items. Silver inventory of $577,285 and
$594,615 at December 31, 1997 and June 30, 1997, 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.
INVESTMENTS IN UNCONSOLIDATED AFFILIATES
The Company has investments in unconsolidated affiliates that are
accounted for under the equity method. Under the equity method, original
investments are ercorded at cost and adjusted by the Company's share of
earnings, losses and distributions of these companies. Investments in
unconsolidated affiliates consist primarily of a 50% interest in a joint
venture with International Game Technology ("IGT") (the "Joint Venture") to
distribute gaming machines on wide-area progressive systems. Net income from
the Joint Venture is included in revenue from proprietary games operations.
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The Joint Venture operates on a September 30 year end, and was not in
operation during the three months and six months ended December 31, 1996.
For the three months ended December 31, 1997, revenues for the Joint Venture
were $47,333,000, expenses were $24,109,000, operating income was $23,224,000
and net income was $23,372,000. For the six months ended December 31, 1997,
revenues were $85,873,000, expenses were $41,062,000, operating income was
$44,811,000 and net income was $44,595,000.
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. Significant estimates in the financial statements include the
estimated depreciable lives of property and equipment and certain estimated
liabilities and valuation reserves. Actual results could differ from those
estimates.
RECLASSIFICATIONS
Certain amounts in the June 30, 1997 balance sheet have been reclassified
to be consistent with the presentation used at December 31, 1997.
EARNINGS PER SHARE
During the three months ended December 31, 1997, the Company adopted FASB
Statement No. 128 "Earnings per share." This statement established standards
for computing and presenting earnings per share and required restatement of all
prior-period earnings per share data presented. A reconciliation of income and
shares for basic and diluted earnings per share (EPS) is as follows:
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Three Months Ended Three Months Ended
December 31, 1997 December 31, 1996
---------------------------------------------------------------------
Per- Per-
Income Shares Share Income Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
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Basic EPS:
Net Income $16,007,267 12,929,309 $1.24 $8,209,616 13,353,057 $0.61
----- -----
----- -----
Effect of Dilutive
Securities:
Options 408,670 230,991
----------- ---------- ---------- ----------
Diluted EPS:
Net Income $16,007,267 13,337,979 $1.20 $8,209,616 13,584,048 $0.60
----------- ---------- ----- ---------- ---------- -----
----------- ---------- ----- ---------- ---------- -----
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<CAPTION>
Six Months Ended Six Months Ended
December 31, 1997 December 31, 1996
------------------------------------------------------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net Income $32,749,033 12,949,290 $ 2.53 $16,451,212 13,339,909 $ 1.23
------- -------
------- -------
Effect of Dilutive Securities:
Options 402,390 248,118
----------- ---------- ---------- ----------
Diluted EPS:
Net Income $32,749,033 13,351,680 $ 2.45 $16,451,212 13,588,027 $ 1.21
----------- ---------- ------- ----------- ---------- -------
----------- ---------- ------- ----------- ---------- -------
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2. COMMITMENTS AND CONTINGENCIES
At December 31, 1997 the Company had entered into various purchase
agreements to purchase gaming equipment for approximately $1.4 million.
The following purported class action lawsuits (the "Lawsuits") were
filed against the Company and certain affiliated persons since the date of
the Company's last quarterly report on Form 10Q:
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PARTIES COURT FILING DATE
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Grossman U.S. District Court, District of NV December 5, 1997
Delio U.S. District Court, District of NV December 11, 1997
Meisel U.S. District Court, District of NV December 16, 1997
Steinberg Superior Court NJ Law Division, Atlantic County December 22, 1997
Winters U.S. District Court, District of CO December 31, 1997
Friend/Vogelzang U.S. District Court, District of NV January 12, 1998
Ryan/Karger District Court, Clark County, NV January 16, 1998
Gehring U.S. District Court, District of NV January 23, 1998
Winters District Court, Clark County, NV January 30, 1998
</TABLE>
The Lawsuits have been brought on behalf of certain purchasers of the
stock of the Company over various periods covered by the suits. Certain
other actions have been filed and dismissed. The complaints allege violations
of state and/or federal securities laws arising out of alleged misstatements
and omissions to state material facts about the Company. The Company believes
that the claims are without merit. The Company intends to vigorously contest
the suits.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Report on Form 10-Q contains certain forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
and other applicable securities laws. Such statements are subject to inherent
risks and uncertainties, and actual results could differ materially from those
anticipated by the forward-looking statements. These risks and uncertainties
include, but are not limited to: risks of proprietary games such as pressure
from competitors, changes in economic conditions, obsolescence, declining
popularity, and duplication by third parties; competition and
seasonality in Black Hawk and Cripple Creek, Colorado; dependence on suppliers;
changes in gaming regulations and taxes; dependence upon key personnel; and
other factors described from time to time in the Company's reports filed with
the Securities and Exchange Commission, including the Company's Form 10-K for
the year ended June 30, 1997, its Registration Statement file no. 333-34755, and
its Form 10Q for the quarter ended September 30, 1997. The Company undertakes
no obligation to update any forward-looking statement.
OVERVIEW
The following table sets forth the percentage of Anchor's total revenues
attributable to proprietary games operations, casino operations, gaming machine
route operations, and other during the three months and six months ended
December 31, 1997 and 1996. The growth in proprietary games revenue as a
percentage of total revenues is attributable primarily to the commencement of
the Company's joint venture with IGT during the second half of fiscal 1997.
<TABLE>
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THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------ ----------------
SOURCES OF REVENUES 1997 1996 1997 1996
- ------------------- ---- ---- ---- ----
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Proprietary games operations 49.5% 29.7% 47.7% 28.0%
Casino operations 34.1 45.4 35.4 47.7
Route operations 15.6 24.1 16.1 23.4
Other .8 .8 .8 .9
----- ----- ----- -----
100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THREE MONTHS ENDED
DECEMBER 31, 1996
REVENUES. Total revenues were $53.5 million for the three months ended
December 31, 1997, an increase of $17.8 million or 49.9% from $35.7 million for
the three months ended December 31, 1996.
Revenues from proprietary games operations were $26.5 million for the three
months ended December 31, 1997, an increase of $15.9 million or 150.0% from
$10.6 million for the three months ended December 31, 1996. This increase is
primarily due to revenues generated
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from the Company's joint venture with IGT and, to a lesser extent, revenues
generated from the Company's proprietary games Wheel of Gold-TM- and Totem
Pole-TM-. These increases were offset to some extent by decreased revenues
generated from the sale of tokens for the proprietary game Silver Strike-TM-.
Revenues from casino operations were $18.2 million for the three months
ended December 31, 1997, an increase of $2.0 million or 12.3% from $16.2
million for the three months ended December 31, 1996. The increase is
primarily due to increased revenue at the Colorado Central Station Casino and
to a lesser extent due to increased revenue at the Colorado Grande Casino.
Revenues from route operations were $8.4 million for the three months
ended December 31, 1997, a decrease of $200,000 or 2.3% from $8.6 million for
the three months ended December 31, 1996. Machines on route increased to 816
at December 31, 1997, from 754 at December 31, 1996, while average machines
on route during the second quarter of fiscal 1998 was 816 machines, as
compared to 767 machines during the second quarter of fiscal 1997. The
decline in route revenue is attributable to increased jackpots and fills as
well as increased competition due to expansion of grocery store chains and
local casino operations.
COSTS AND EXPENSES. Total costs and expenses were $29.0 million for the
three months ended December 31, 1997, an increase of $5.4 million or 22.9%
from $23.6 million for the three months ended December 31, 1996. Total costs
and expenses as a percentage of total revenues decreased to 54.3% during the
second quarter of fiscal 1998 from 66.1% during the second quarter of fiscal
1997.
Costs and expenses of proprietary games operations were $3.1 million for
the three months ended December 31, 1997, an increase of $300,000 or 10.7%
from $2.8 million for the three months ended December 31, 1996. Proprietary
games costs and expenses as a percentage of proprietary games revenues
decreased to 11.7% during the second quarter of fiscal 1998 from 26.2% during
the second quarter of fiscal 1997. The decrease in proprietary games costs
as a percentage of revenue is primarily due to revenues from the joint
venture with IGT, which, for accounting purposes, are recorded net of
expenses. Additionally, revenues from the Company's proprietary games, such
as Wheel of Gold-TM- and Totem Pole-TM-, incur less costs and expenses as a
percentage of revenue than the Company's Silver Strike-TM- game, which
previously accounted for a larger percentage of the Company's proprietary
games revenue. Recent developments in world silver markets have resulted in
an increase in silver prices, which, if it persists, could affect the
profitability of the Silver Strike game.
Costs and expenses of casino operations were $8.0 million for the three
months ended December 31, 1997, an increase of $900,000 or 12.7% from $7.1
million for the three months ended December 31, 1996. Casino costs and expenses
as a percentage of casino revenue remained relatively constant at 44.0% during
the second quarter of fiscal 1998 from 44.1% during the second quarter of fiscal
year 1997. The increase in casino costs and expenses was primarily due to
increased gaming taxes, promotions and direct payroll at both of the Company's
casinos.
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Costs and expenses of route operations were $5.2 million for the three
months ended December 31, 1997, an increase of $100,000 or 2.0% from $5.1
million for the three months ended December 31, 1996. Costs and expenses of
route operations as a percentage of route revenue increased to 62.3% during the
second quarter of fiscal 1998 compared to 58.9% during the second quarter of
fiscal 1997. The increase in route costs and expenses was primarily due to
increased location costs and to a lesser extent increased direct payroll costs,
both related to increased machines on route.
Selling, general, and administrative ("SG&A") expenses were $9.2 million
for the three months ended December 31, 1997, an increase of $3.1 million or
50.8% from $6.1 million for the three months ended December 31, 1996. SG&A
expenses as a percentage of total revenue remained relatively constant at 17.1%
during the second quarter of fiscal 1998 compared to 17.2% during the second
quarter of fiscal 1997. The increase in total SG&A expenses is primarily due to
increased expenses in the Company's proprietary games operations of
approximately $2.5 million, primarily due to increased payroll and compensation
costs, valuation allowances, and licensing costs.
Depreciation and amortization expense was $3.1 million for the three months
ended December 31, 1997, an increase of $1.0 million or 47.6% from $2.1 million
for the three months ended December 31, 1996. This increase is primarily due to
increased depreciation expense incurred in the Company's proprietary games
operations and to a lesser extent increased depreciation incurred at the
Colorado Central Station Casino.
INCOME FROM OPERATIONS. As a result of the factors discussed above, income
from operations was $24.5 million for the three months ended December 31, 1997,
an increase of $12.4 million or 102.5% from $12.1 million for the three months
ended December 31, 1996. As a percentage of total revenues, income from
operations increased to 45.7% during the second quarter of fiscal 1998 from
33.9% during the second quarter of fiscal 1997.
INTEREST INCOME. Interest income was $842,000 for the three months ended
December 31, 1997, a decrease of $123,000 or 12.7% from $965,000 for the three
months ended December 31, 1996. This decrease is due to decreased balances in
short-term investments primarily resulting from the acquisition of treasury
stock.
NET INCOME. As a result of the factors discussed above, net income was
$16.0 million for the three months ended December 31, 1997, an increase of $7.8
million or 95.1% from $8.2 million for the three months ended December 31, 1996.
SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1996
REVENUES. Total revenues were $108.0 million for the six months ended
December 31, 1997, an increase of $37.2 million or 52.5% from $70.8 million for
the six months ended December 31, 1996.
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<PAGE>
Revenues from proprietary games operations were $51.5 million for the six
months ended December 31, 1997, an increase of $31.7 million or 160.1% from
$19.8 million for the six months ended December 31, 1996. This increase is
primarily due to revenues generated from the Company's joint venture with IGT
and, to a lesser extent, revenues generated from the Company's proprietary games
Wheel of Gold-TM- and Totem Pole-TM-. These increases were offset to some
extent by decreased revenues generated from the proprietary game Silver
Strike-TM-.
Revenues from casino operations were $38.3 million for the six months ended
December 31, 1997, an increase of $4.5 million or 13.3% from $33.8 million for
the six months ended December 31, 1996. The increase is primarily due to
increased revenue at the Colorado Central Station Casino and to a lesser extent
due to increased revenue at the Colorado Grande Casino.
Revenues from route operations were $17.4 million for the six months ended
December 31, 1997, an increase of $800,000 or 4.8% from $16.6 million for the
six months ended December 31, 1996. Average machines on route during the six
months ended December 31, 1997 was 816 machines, as compared to 758 machines
during the six months ended December 31, 1996. The increase in route revenue
was due to the increased number of machines on route offset somewhat by
increased jackpots and fills as well as increased competition due to expansion
of grocery store chains and local casino operations.
COSTS AND EXPENSES. Total costs and expenses were $57.5 million for the six
months ended December 31, 1997, an increase of $11.0 million or 23.7% from $46.5
million for the six months ended December 31, 1996. Total costs and expenses as
a percentage of total revenues decreased to 53.2% during the six months ended
December 31, 1997 from 65.7% during the six months ended December 31, 1996.
Costs and expenses of proprietary games operations were $6.3 million for
the six months ended December 31, 1997, an increase of $500,000 or 8.6% from
$5.8 million for the six months ended December 31, 1996. Proprietary games
costs and expenses as a percentage of proprietary games revenues decreased to
12.3% during the six months ended December 31, 1997 from 29.5% during the six
months ended December 31, 1996. The decrease in proprietary games costs as a
percentage of revenue is primarily due to revenues from the joint venture with
IGT, which, for accounting purposes, are recorded net of expenses.
Additionally, revenues from the Company's proprietary games, such as Wheel of
Gold-TM- and Totem Pole-TM-, incur less costs and expenses as a percentage of
revenue than the Company's Silver Strike-TM- game, which previously accounted
for a larger percentage of the Company's proprietary games revenue. Recent
developments in world silver markets have resulted in an increase in silver
prices, which, if it persists, could affect the profitability of the Silver
Strike game.
Costs and expenses of casino operations were $16.1 million for the six
months ended December 31, 1997, an increase of $2.0 million or 14.2% from $14.1
million for the six months ended December 31, 1996. Casino costs and expenses
as a percentage of casino revenue increased slightly to 42.1% during the six
months ended December 31, 1997 from
-13-
<PAGE>
41.7% during the six months ended December 31, 1996. The increase in casino
costs and expenses was primarily due to increased gaming taxes, promotions
and direct payroll at both of the Company's casinos.
Costs and expenses of route operations were $10.6 million for the six
months ended December 31, 1997, an increase of $800,000 or 8.2% from $9.8
million for the six months ended December 31, 1996. Costs and expenses of route
operations as a percentage of route revenue increased slightly to 61.0% during
the six months ended December 31, 1997 compared to 59.3% during the six months
ended December 31, 1996. The increase in route costs and expenses was primarily
due to increased location costs and to a lesser extent increased direct payroll
costs, both related to increased machines on route.
Selling, general, and administrative ("SG&A") expenses were $17.6 million
for the six months ended December 31, 1997, an increase of $5.2 million or 41.9%
from $12.4 million for the six months ended December 31, 1996. SG&A expenses as
a percentage of total revenue decreased to 16.3% during the six months ended
December 31, 1997 from 17.5% during the six months ended December 31, 1996. The
increase in total SG&A expenses is primarily due to increased expenses in the
Company's proprietary games operations of approximately $4.4 million primarily
due to increased payroll and compensation costs, valuation allowances, and
licensing costs.
Depreciation and amortization expense was $5.9 million for the six months
ended December 31, 1997, an increase of $2.3 million or 63.9% from $3.6 million
for the six months ended December 31, 1996. This increase is primarily due to
increased depreciation expense incurred in the Company's proprietary games
operations and to a lesser extent increased depreciation incurred at the
Colorado Central Station Casino.
INCOME FROM OPERATIONS. As a result of the factors discussed above, income
from operations was $50.5 million for the six months ended December 31, 1997, an
increase of $26.2 million or 107.8% from $24.3 million for the six months ended
December 31, 1996. As a percentage of total revenues, income from operations
increased to 46.8% during the six months ended December 31, 1997 from 34.3%
during the six months ended December 31, 1996.
INTEREST INCOME. Interest income was $1.7 million for the six months ended
December 31, 1997, a decrease of $300,000 or 15.0% from $2.0 million for the six
months ended December 31, 1996. This decrease is due to decreased balances in
short-term investments primarily resulting from the acquisition of treasury
stock.
NET INCOME. As a result of the factors discussed above, net income was
$32.7 million for the six months ended December 31, 1997, an increase of $16.2
million or 98.2% from $16.5 million for the six months ended December 31, 1996.
-14-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Anchor's principal sources of liquidity have been cash flows from
operations and the net proceeds from a secondary public offering in April 1996
and the Company's initial public offering in February 1994. Net proceeds to the
Company from the April 1996 offering were $53.9 million, net proceeds from the
February 1994 offering were $34.1 million. In October 1997, certain
shareholders of the Company completed a secondary public offering. The Company
did not receive any proceeds from the October 1997 offering. Net cash provided
by operating activities was $26.2 million during the first six months of fiscal
1998 and $22.8 million during the first six months of fiscal 1997. At December
31, 1997, the Company had cash and cash equivalents of $40.1 million, working
capital of $32.2 million, and a $10.0 million unsecured revolving bank line of
credit (the "Bank Revolver").
During the first six months of fiscal 1998, the Company spent $16.9 million
on capital expenditures, primarily related to the purchase of gaming devices and
equipment for use in its proprietary games operations.
In September 1997, the Company, with a joint venture partner, was granted
permission to operate six permanent full-time and one part-time charity based
gaming clubs in Ontario, Canada. Capital expenditures related to this joint
venture have been immaterial to date. The Company anticipates the use of cash
to fund both capital expenditures and preopening expenses to increase beginning
in the third quarter of fiscal 1998.
In April 1997, the Board of Directors authorized a repurchase of up to
1,000,000 shares of the Company's common stock. In December 1997, the Board of
Directors authorized 514,000 additional shares for repurchase. During the
quarter ended December 31, 1997 the Company repurchased 460,400 shares of stock
at a cost of $25.8 million. During the six months ended December 31, 1997, the
Company repurchased 638,375 shares of stock at a cost of $36.2 million. Since
the inception of the repurchase program, the Company repurchased 974,375 shares
of stock at a cost of $49.6 million. As of December 31, 1997 there was a
balance of 539,625 authorized shares remaining under the repurchase program.
In April 1997, the Company entered into the Bank Revolver, which expires
November 30, 1998. The Bank Revolver bears interest at the prime rate of
interest or LIBOR plus 2%, at the Company's option. The Company 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 the first six
months of fiscal 1998 the Company did not borrow under the Bank Revolver.
The Company believes its principal liquidity requirements will be the
purchase of additional proprietary gaming machines in formats that have already
been introduced to the market as well as the development and purchase of
proprietary gaming machines in formats that have not yet been introduced. The
Company anticipates the use of cash to fund both capital expenditures and
preopening expenses related to its joint venture established to operate six
permanent full-time and one part-time charity based gaming clubs in Ontario,
Canada.
-15-
<PAGE>
At December 31, 1997, the Company had commitments to purchase gaming
equipment for approximately $1.4 million.
The Company is currently in the process of evaluating its computer
software and databases to determine whether or not modifications will be
required to prepare the Company's computer systems for the year 2000. These
problems, which have been widely reported in the media, could cause malfunctions
in certain software and databases with respect to dates on or after January 1,
2000, unless corrected. At this time, the Company has not yet determined the
cost of evaluating its computer software or databases or of making any
modifications required to correct any such problems.
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 expenditures.
The Company continually seeks opportunities to expand its gaming oriented
businesses in new and existing gaming jurisdictions. If successful in pursuing
another opportunity in any gaming oriented business and depending on the amount
of funding required, the Company may be required to obtain additional financing.
PART II. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Not applicable
-16-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized
ANCHOR GAMING
(Registrant)
Date February 12, 1998 /s/ Stanley E. Fulton
----------------- ---------------------
Stanley E. Fulton
Chairman and
Chief Executive Officer
Date February 12, 1998 /s/ Geoffrey A. Sage
----------------- ---------------------
Geoffrey A. Sage
Corporate Controller and
Principal Accounting Officer
-17-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ANCHOR GAMING CONSOLIDATED CONDENSED FINANCIAL STATEMENTS FOR THE THREE
MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1997
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 40,138,666
<SECURITIES> 0
<RECEIVABLES> 7,617,216
<ALLOWANCES> 0
<INVENTORY> 1,403,038
<CURRENT-ASSETS> 51,317,471
<PP&E> 95,979,128
<DEPRECIATION> 0
<TOTAL-ASSETS> 195,017,951
<CURRENT-LIABILITIES> 19,149,148
<BONDS> 0
0
0
<COMMON> 136,903
<OTHER-SE> 171,661,232
<TOTAL-LIABILITY-AND-EQUITY> 195,017,951
<SALES> 0
<TOTAL-REVENUES> 53,509,254
<CGS> 0
<TOTAL-COSTS> 16,791,472
<OTHER-EXPENSES> 12,241,563
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56,153
<INCOME-PRETAX> 25,611,359
<INCOME-TAX> 9,604,359
<INCOME-CONTINUING> 16,007,268
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,007,268
<EPS-PRIMARY> 1.24
<EPS-DILUTED> 1.20
</TABLE>
