<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
FOR ANNUAL REPORT AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1999
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 0-23124
------------------------
ANCHOR GAMING
(Exact name of Registrant as specified in its charter)
NEVADA 88-0304253
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
815 PILOT ROAD, SUITE G
LAS VEGAS, NEVADA 89119
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER: (702) 896-7568
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS REGISTERED
- ----------------------------------- ----------------------------------------
COMMON STOCK, $.01 PAR VALUE THE NASDAQ STOCK MARKET'S NATIONAL
MARKET
------------------------
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 23, 1999 based on the $49.625 per
share closing price for the Company's common stock on the Nasdaq National Market
was approximately $593,197,747.
The number of shares of the Registrant's Common Stock outstanding as of
December 30, 1999 was 11,991,207.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for its Annual
Meeting of Stockholders to be held on or about November 22, 1999 (to be filed)
are incorporated by reference into Part III of this Form 10-K.
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<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS
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<C> <S>
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)).
2.5 Agreement and Plan of Merger dated as of March 9, 1999 among Anchor Gaming, Olive AP Acquisition
Corporation and Powerhouse Technologies, Inc. (Incorporated by reference to Exhibit 2.1 of the Company's
Current Report on Form 8-K dated March 12, 1999.)
2.6 Amendment No. 1 to Merger Agreement dated as of March 19, 1999 among Anchor Gaming, Olive AP Acquisition
Corporate and Powerhouse Technologies, Inc. (Incorporated by reference to Exhibit 2.2 of the Company's
Current Report on Form 8-K dated July 14, 1999.)
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)).
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)).
4.2 Rights Agreement between the Company and the Rights Agent. (Incorporated by reference to Exhibit 4.2 to
the Company's June 30, 1998 Annual Report on Form 10-K (File No. 0-23124)).
4.3 Certificate of Designation, Preferences, and Rights of Series A Junior Participating Preferred Stock.
(Incorporated by reference to Exhibit 4.3 to the Company's June 30, 1998 Annual Report on Form 10-K
(File No. 0-23124)).
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. (Incorporated by reference to
Exhibit 9.4 to the Company's June 30, 1996 Annual Report on Form 10-K (File No. 0-23124))
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
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<C> <S>
9.5 Irrevocable Proxy of Elizabeth F. Jones in favor of Stanley E. Fulton. (Incorporated by reference to
Exhibit 9.5 to the Company's June 30, 1996 Annual Report on Form 10-K (File No. 0-23124)).
9.6 Irrevocable Proxy of Stanley M. Fulton in favor of Stanley E. Fulton. (Incorporated by reference to
Exhibit 9.6 to the Company's June 30, 1996 Annual Report on Form 10-K (File No. 0-23124)).
9.7 Irrevocable Proxy of Michael B. Fulton in favor of Stanley E. Fulton. (Incorporated by reference to
Exhibit 9.7 to the Company's June 30, 1996 Annual Report on Form 10-K (File No. 0-23124)).
9.8 Irrevocable Proxy of Lucinda F. Tischer in favor of Stanley E. Fulton. (Incorporated by reference to
Exhibit 9.8 to the Company's June 30, 1996 Annual Report on Form 10-K (File No. 0-23124)).
9.9 Irrevocable Proxy of Virginia L. Fulton in favor of Stanley E. Fulton. (Incorporated by reference to
Exhibit 9.9 to the Company's June 30, 1996 Annual Report on Form 10-K (File No. 0-23124)).
9.10 Irrevocable Proxy of Michael B. Fulton in favor of Stanley E. Fulton dated January 19, 1999.
9.11 Irrevocable Proxy of Stanley M. Fulton in favor of Stanley E. Fulton dated January 19, 1999.
9.12 Irrevocable Proxy of Elizabeth F. Jones in favor of Stanley E. Fulton dated January 19, 1999.
9.13 Irrevocable Proxy of Lucinda F. Tischer in favor of Stanley E. Fulton dated January 19, 1999.
9.14 Irrevocable Proxy of Deborah J. Fulton in favor of Stanley E. Fulton dated January 19, 1999.
9.15 Irrevocable Proxy of Maryland Park Apartments, Inc. in favor of Stanley E. Fulton dated January 22,
1999.
9.16 Irrevocable Proxy of Virginia L. Fulton in favor of Stanley E. Fulton January 19, 1999.
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)).
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)).
</TABLE>
3
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<TABLE>
<CAPTION>
EXHIBITS
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<C> <S>
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)).
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 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)).
10.15 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)).
10.16 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)).
10.17 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)).
10.18 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)).
10.19 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)).
10.20 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)).
10.21 Form of Stock Option Agreement between the Company and Glen J. Hettinger. (Incorporated by reference to
Exhibit 10.28 to the Company's June 30, 1996 Annual Report on Form 10-K (File No. 000-23124)).
10.22 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)).
</TABLE>
4
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<TABLE>
<CAPTION>
EXHIBITS
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<C> <S>
10.23 Indemnification Agreement between the Company and Glen J. Hettinger. (Incorporated by reference to
Exhibit 10.30 to the Company's June 30, 1998 Annual Report on Form 10-K (File No. 0-23124)).
10.24 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)).
10.25 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)).
10.26 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)).
10.27 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)).
10.28 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)).
10.29 Addendum Agreement to amend the Employment and Stock Option Agreements between the Company and Salvatore
T. DiMascio. (Incorporated by reference to Exhibit 10.34 to the Company's June 30, 1996 Annual Report on
Form 10-K (File No. 0-23124)).
10.30 Joint Venture Agreement, dated as of December 3, 1996 by and between Anchor Games, a d/b/a/ of Anchor
Coin, a Nevada corporation and Subsidiary of the Company, and IGT (File No. 000-23124)). (Incorporated
by reference to Exhibit 10.37 to the Company's June 30, 1997 Annual Report on Form 10-K (File No.
0-23124)).
10.31 Stock Option Agreement of William Adams dated April 2, 1997. (Incorporated by reference to Exhibit 4.1
to the Company's Registration Statement on Form S-8 (File No. 333-53257)).
10.32 Stock Option Agreement of Thomas J. Matthews dated April 2, 1997. (Incorporated by reference to Exhibit
4.2 to the Company's Registration Statement on Form S-8 (File No. 333-53257)).
10.33 Stock Option Agreement of Joseph Murphy dated April 2, 1997. (Incorporated by reference to Exhibit 4.3
to the Company's Registration Statement on Form S-8 (File No. 333-53257)).
10.34 Consulting Agreement by and between Anchor Gaming, a Nevada corporation and Richard M. Haddrill dated as
of April 13, 1999.
10.35 Loan Agreement, dated as of June 29, 1999 among Anchor Gaming as borrower, the lenders therein named,
and Bank of America National Trust and Savings Association as administrative agent.
10.36 Form of Stock Option Agreement.
21.1 List of Subsidiary Corporations.
27.1 Financial Data Schedule.
99.1* Financial statements of Spin for Cash Joint Venture and Master
License Agreement for the years ended September 30, 1999, 1998
and 1997.
</TABLE>
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* Filed herewith
5
<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.
<TABLE>
<S> <C> <C>
ANCHOR GAMING
By: /s/ MICHAEL D. RUMBOLZ
-----------------------------------------
Michael D. Rumbolz
PRESIDENT AND CHIEF EXECUTIVE OFFICER
By: /s/ GEOFFREY A. SAGE
-----------------------------------------
Geoffrey A. Sage
CHIEF FINANCIAL OFFICER
Date: December 30, 1999
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ STUART D. BEATH
- ------------------------------ Director December 30, 1999
Stuart D. Beath
/s/ RICHARD R. BURT
- ------------------------------ Director December 30, 1999
Richard R. Burt
/s/ MICHAEL B. FULTON
- ------------------------------ Director December 30, 1999
Michael B. Fulton
/s/ STANLEY E. FULTON
- ------------------------------ Director December 30, 1999
Stanley E. Fulton
/s/ GLEN J. HETTINGER
- ------------------------------ Director December 30, 1999
Glen J. Hettinger
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ ELIZABETH F. JONES
- ------------------------------ Director December 30, 1999
Elizabeth F. Jones
/s/ MICHAEL D. RUMBOLZ
- ------------------------------ Director December 30, 1999
Michael D. Rumbolz
</TABLE>
<PAGE>
SPIN FOR CASH JV FINANCIALS
Spin for Cash Joint Venture
and Master License Agreement
Financial Statements
for the Years Ended October 2, 1999
and September 30, 1998 and for the Period
from December 3, 1996 (Inception) through
September 30, 1997 and Independent Auditors' Report
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Co-Venturers of the Spin for Cash
Joint Venture and Master License Agreement:
We have audited the accompanying balance sheets of the Spin for Cash Joint
Venture and Master License Agreement (the "Venture") as of October 2, 1999 and
September 30, 1998, and the related statements of income, venturers' capital,
and cash flows for the years ended October 2, 1999 and September 30, 1998 and
for the period from December 3, 1996 (inception) through September 30, 1997.
These financial statements are the responsibility of the Venture'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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. 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 financial statements present fairly, in all material
respects, the financial position of the Venture as of October 2, 1999 and
September 30, 1998, and the results of its operations and its cash flows for the
years ended October 2, 1999 and September 30, 1998 and for the period from
December 3, 1996 (inception) through September 30, 1997, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Reno, Nevada
November 10, 1999
<PAGE>
SPIN FOR CASH JOINT VENTURE
AND MASTER LICENSE AGREEMENT
STATEMENTS OF INCOME
YEARS ENDED OCTOBER 2, 1999 AND SEPTEMBER 30, 1998
AND THE PERIOD FROM DECEMBER 3, 1996 (INCEPTION)
THROUGH SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Dollars in thousands)
1999 1998 1997
<S> <C> <C> <C>
REVENUES:
Gaming operations $ 293,460 $ 246,851 $ 60,672
--------- --------- ---------
COST AND EXPENSES:
Cost of gaming operations 124,268 101,655 26,979
Depreciation 17,911 13,237 2,586
Research and development 3,216 2,088 1,587
Selling, general, and administrative 177 189 50
Provision for bad debts -- 125 --
--------- --------- ---------
Total expenses 145,572 117,294 31,202
--------- --------- ---------
INCOME FROM OPERATIONS 147,888 129,557 29,470
--------- --------- ---------
OTHER INCOME (EXPENSE):
Interest income 6,307 3,745 499
Interest expense (4,234) (2,323) (821)
Loss on investments (3) -- --
--------- --------- ---------
Total other income (expense), net 2,070 1,422 (322)
--------- --------- ---------
NET INCOME $ 149,958 $ 130,979 $ 29,148
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SPIN FOR CASH JOINT VENTURE
AND MASTER LICENSE AGREEMENT
BALANCE SHEETS
OCTOBER 2, 1999 AND SEPTEMBER 30, 1998
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<TABLE>
<CAPTION>
(Dollars in thousands)
1999 1998
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 57,783 $ 45,835
Accounts receivable, net 24,674 20,179
Investments to fund liabilities to jackpot winners 4,741 5,900
Prepaid royalties 15,238 --
Prepaid expenses and other 931 1,839
--------- ---------
Total current assets 103,367 73,753
--------- ---------
FURNITURE, FIXTURES, AND EQUIPMENT, at cost 51,688 49,564
Less accumulated depreciation (29,309) (14,792)
--------- ---------
Equipment, net 22,379 34,772
--------- ---------
PREPAID ROYALTIES 24,164 --
--------- ---------
INVESTMENTS TO FUND LIABILITIES TO JACKPOT
WINNERS 50,033 63,217
--------- ---------
TOTAL $ 199,943 $ 171,742
========= =========
LIABILITIES AND VENTURERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable to IGT $ 27,997 $ 3,182
Accounts payable to Anchor 715 1,348
Jackpot liabilities 12,383 7,826
Commissions and other payable 1,297 2,932
Royalties payable -- 3,455
Capital lease payable to IGT 398 2,120
--------- ---------
Total current liabilities 42,790 20,863
LONG-TERM JACKPOT LIABILITIES 80,343 86,952
--------- ---------
Total liabilities 123,133 107,815
VENTURERS' CAPITAL 76,810 63,927
--------- ---------
TOTAL $ 199,943 $ 171,742
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SPIN FOR CASH JOINT VENTURE
AND MASTER LICENSE AGREEMENT
STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 2, 1999 AND SEPTEMBER 30, 1998
AND THE PERIOD FROM DECEMBER 3, 1996 (INCEPTION)
THROUGH SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C> <C> <C>
1999 1998 1997
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $149,958 $130,979 $ 29,148
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 17,911 13,237 2,586
Provision for bad debts -- 125 --
Loss on sale of assets 2,494 1,887 --
Increase in accounts receivable (4,495) (8,517) (11,788)
Increase in prepaid expenses and other (38,494) (1,725) (114)
Increase (decrease) in accounts payable and
accrued expenses 17,370 (13,526) 25,280
-------- -------- --------
Total adjustments (5,214) (8,519) 15,964
-------- -------- --------
Net cash provided by operating activities 144,744 122,460 45,112
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in furniture, fixtures, and equipment (10,749) (31,802) (22,171)
Investment in systems annuity assets 14,344 (57,761) (11,356)
Proceeds from the sale of furniture, fixtures, and
equipment 2,735 2,774 --
-------- -------- --------
Net cash provided by (used in) investing activities 6,330 (86,789) (33,527)
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SPIN FOR CASH JOINT VENTURE
AND MASTER LICENSE AGREEMENT
STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 2, 1999 AND SEPTEMBER 30, 1998
AND THE PERIOD FROM DECEMBER 3, 1996 (INCEPTION)
THROUGH SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Dollars in thousands)
1999 1998 1997
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on systems annuity liability $ (35,449) $ (5,892) $ (1,002)
Collection from systems to fund jackpot
liabilities 33,398 79,024 22,649
Capital contributions 22,275 -- 5,943
Capital distributions (159,350) (102,143) --
Net cash (used in) provided by financing
activities (139,126) (29,011) 27,590
--------- --------- ---------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 11,948 6,660 39,175
CASH AND CASH EQUIVALENTS:
Beginning of period 45,835 39,175 --
--------- --------- ---------
End of period $ 57,783 $ 45,835 $ 39,175
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION -
Cash paid during the period for interest $ 279 $ 1,348 $ --
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES -
Capital lease additions $ 201 $ 2,128 $ 1,380
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SPIN FOR CASH JOINT VENTURE
AND MASTER LICENSE AGREEMENT
STATEMENTS OF VENTURERS' CAPITAL
YEARS ENDED OCTOBER 2, 1999 AND SEPTEMBER 30, 1998
AND THE PERIOD FROM DECEMBER 3, 1996 (INCEPTION)
THROUGH SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Dollars in thousands)
Anchor IGT Total
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 3, 1996 (Inception) $ -- $ -- $-
Capital distributions 3,100 2,843 5,943
Net income 14,574 14,574 29,148
--------- --------- ---------
BALANCE, SEPTEMBER 30, 1997 17,674 17,417 35,091
Capital distributions (51,200) (50,943) (102,143)
Net income 65,489 65,490 130,979
--------- --------- ---------
BALANCE, SEPTEMBER 30, 1998 31,963 31,964 63,927
Capital contributions -- 22,275 22,275
Capital distributions (79,675) (79,675) (159,350)
Net income 74,979 74,979 149,958
--------- --------- ---------
BALANCE, SEPTEMBER 30, 1999 $ 27,267 $ 49,543 $ 76,810
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SPIN FOR CASH JOINT VENTURE
AND MASTER LICENSE AGREEMENT
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION
The Spin for Cash Joint Venture and Master License Agreement (the "Venture")
is owned equally by IGT, a wholly owned subsidiary of International Game
Technology and Anchor Gaming ("Anchor"). The Joint Venture Agreement was
signed on December 3, 1996. The Master License Agreement, dated December 3,
1996, is utilized in jurisdictions where the Spin for Cash Joint Venture has
not been approved to operate. The first machines operated by the Venture
were placed into operation on December 12, 1996.
The Venture's primary purpose is to utilize IGT's experience and technology
along with Anchor's proprietary game library in order to develop a variety
of spinning reel slot, video top box, and other innovative games for the
MegaJackpots-TM- and lease game markets. As of October 2, 1999, the Venture
was operating in Indiana, Louisiana, Michigan, Missouri, Mississippi, Native
American markets, Nevada, New Jersey, South Dakota, Canada, and cruise ship
markets.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - A complete stand-alone set of books is maintained
for the Venture in accordance with applicable generally accepted accounting
principles.
Revenues - Substantially all of the revenues of the Venture are from the
operation of linked progressive slot machines. Revenues are recognized as
earned.
In New Jersey, each progressive system is operated by an independent trust
managed by representatives from participating casinos. The Venture receives
revenues based upon a set annual fee per machine per system. Payments to the
jackpot winners are made by the trust.
In Louisiana, Michigan, Missouri, Mississippi, Native American markets,
Nevada, and South Dakota, the Venture provides the machines and operates the
central monitoring system. The casinos pay a percentage of the play to the
Venture.
In Canada, Indiana, and the cruise ship markets, where machines are not
linked, the Venture provides games for a set daily lease fee.
Operating Expenses - IGT and Anchor provide most of the services associated
with the operation of the Venture. The cost of these operations are billed
to the Venture using methodologies that best approximate the actual cost of
these services to the respective partner. Interest on payables balances
greater than 30 days and on inventories held for the Venture is accrued at
an annual rate of approximately five percent and is billed monthly.
Management believes that the methods used to allocate these costs are
reasonable.
Third Party Expenses - All invoices received from third parties for the
delivery of goods or services are paid by the partners. IGT and Anchor
invoice the Venture for these costs and the amounts are properly recorded on
the books of the Venture.
<PAGE>
Research and Development - IGT and Anchor perform substantially all of the
engineering development work for the Venture and invoice the Venture for
these services at cost. Research and development charges are expensed as
incurred.
Cash and Cash Equivalents - Amounts include cash required for funding
current progressive systems jackpot payments and purchasing investments to
meet obligations for making payments to jackpot winners. Cash in excess of
daily requirements is generally invested in various short-term marketable
securities with maturities of 90 days or less. Such investments are stated
at cost, which approximates market value.
Prepaid Royalties - Amounts include prepayment of fees for trademarks used
for various Venture products.
Depreciation - Substantially all of the Venture's depreciable assets are
directly used in gaming operations and are provided by IGT. IGT invoices the
Venture for these assets at their approximate cost. Depreciation is recorded
on the straight-line method over the following estimated useful lives:
Gaming operations equipment 1 1/2 to 3 years
Furniture, fixtures, and equipment 5 years
Estimates - 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.
Reclassifications - Certain amounts in the 1998 and 1997 financial
statements have been reclassified to be consistent with the presentation
used in 1999.
3. INVESTMENTS TO FUND LIABILITIES TO JACKPOT WINNERS
Federal legislation, passed in October 1998, permits jackpot winners to
elect to receive the discounted value of progressive jackpots won in lieu of
annual installments. For jackpots won after the date of the legislation, the
winner was able to make this election after July 1, 1999. Upon a winner's
election after July 1, 1999, investments held by the Venture to fund the
winner's liability were sold to settle the liability. The offer for these
past winners to elect a single cash payment has now expired. Therefore,
there will be no additional sales of held-to-maturity investments.
The remaining investments represent discounted U.S. Treasury securities
purchased to meet obligations for making payments to linked progressive
systems jackpot winners. At October 2, 1999, the Venture has both the intent
and ability to hold these investments to maturity and, therefore, has
classified them as held-to-maturity. Accordingly, these investments are
stated at cost, adjusted for amortization of premiums and accretion of
discounts over the term of the security, using the interest method.
Securities in this portfolio have maturity dates through 2018.
4. CAPITAL LEASES
Assets recorded under capital leases relate to the operation of Louisiana
and Missouri linked progressive systems. The machines are leased from IGT at
a rate of 1/36 of the value of the assets each month. As of October 2, 1999
<PAGE>
and September 30, 1998, the assets had a net value of $398,000 and
$2,120,000, respectively.
5. LIABILITIES TO JACKPOT WINNERS
From Louisiana, Michigan, Missouri, Mississippi, Native American, Nevada,
and South Dakota systems, the Venture receives a percentage of the amount
played or machine rental and service fees from the linked progressive
systems to fund the related jackpot payments. Winners may elect to receive a
single payment of the discounted value of the jackpot won or annual
installments. Equal annual installments are paid over 20 to 26 years without
interest.
The following schedule sets forth the future fiscal-year payments for the
jackpot winners under these systems at October 2, 1999:
<TABLE>
<CAPTION>
Fiscal Year Ending Payment
--------------------------------------------------------------------
(Dollars in thousands)
<S> <C>
2000 $9,523
2001 9,523
2002 9,523
2003 9,523
2004 9,523
2005 and after 141,303
--------
$188,918
</TABLE>
Jackpot liabilities in the amount of the present value of the jackpots are
recorded concurrently with the recognition of the related revenue. Jackpot
liabilities include discounted payments due to winners for jackpots won and
amounts accrued for jackpots not yet won that are contractual obligations of
the Venture. Jackpot liabilities consist of the following:
<TABLE>
<CAPTION>
October 2, September 30,
1999 1998
- --------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Gross payments due to jackpot winners $ 188,918 $ 117,445
Unamortized discount on payments to jackpot winners (138,608) (57,397)
Accrual for jackpots not yet won 42,416 34,730
--------- ---------
Total jackpot liabilities 92,726 94,778
Less current liabilities (12,383) (7,826)
--------- ---------
Long-term jackpot liabilities $ 80,343 $ 86,952
========= =========
</TABLE>
<PAGE>
The Venture amortizes the discount on the winner liabilities, recognizing it
as interest expense. During fiscal years 1999, 1998, and 1997, the Venture
recorded interest expense on jackpot liabilities of $4,234,000, $2,323,000,
and $177,000, respectively. The Venture is required to maintain cash and
investments relating to systems liabilities in separate accounts. During
fiscal years 1999, 1998, and 1997, the Venture recorded interest income on
jackpot investments of $4,213,000, $2,323,000, and $177,000, respectively.
6. INCOME TAXES
The Venture has not made any provision for federal income taxes due to its
election to be taxed as a pass-through entity under Internal Revenue Code,
Section 704A. Under this election, income of the Venture is taxable to the
individual venturers.
7. RELATED-PARTY TRANSACTIONS
Substantially all of the goods and services recorded by the Venture are
provided by and/or paid for by IGT and Anchor. These transactions are
recorded on the books of the Venture as a trade payable. As of October 2,
1999 and September 30, 1998, the payable to IGT had a balance of $27,997,000
and $3,182,000, respectively. As of October 2, 1999 and September 30, 1998,
there was $715,000 and $1,349,000, respectively, payable to Anchor. Interest
expense to IGT of $50,000, $31,000, and $645,000 was recorded in 1999, 1998,
and 1997, respectively.
8. SUBSEQUENT EVENT
IGT made an equity contribution of $22.0 million in September 1999 and
Anchor made a $22.0 million equity contribution in October 1999 to fund
certain contractual expenditures.
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