<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
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
November 10, 2000:
Class Outstanding as of November 10, 2000
----- -----------------------------------
Common stock, $0.01 par value 7,133,521
<PAGE>
ANCHOR GAMING
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
INDEX
<TABLE>
<CAPTION>
PAGE NO.
Part I. Financial Information
<S> <C>
Item 1. Consolidated Condensed Financial Statements
Consolidated Condensed Balance Sheets at
September 30, 2000 and June 30, 2000 (unaudited) 3
Consolidated Condensed Statements of
Income for the three months ended
September 30, 2000 and 1999 (unaudited) 4
Consolidated Condensed Statements of Cash
Flows for the three months ended
September 30, 2000 and 1999 (unaudited) 5
Notes to Consolidated Condensed Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosure about Market Risk 20
Part II. Other Information
Item 1. Legal Proceedings 21
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ANCHOR GAMING
CONSOLIDATED CONDENSED SEPTEMBER 30, JUNE 30,
BALANCE SHEETS (UNAUDITED) 2000 2000
----------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 27,376 $ 25,883
Accounts and notes receivable, net 43,262 43,959
Inventory, net 16,132 17,378
Assets held for sale 51,873 -
Other current assets 8,947 11,339
------------------- ----------------
Total current assets 147,590 98,559
Property and equipment, net 177,473 200,976
Goodwill, net 86,113 117,218
Other intangible assets, net 43,821 43,896
Investments in unconsolidated affiliates 70,372 66,822
Other long-term assets 27,777 21,248
------------------- ----------------
Total assets $ 553,146 $ 548,719
=================== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 18,852 $ 17,777
Current portion of long-term debt 1,513 1,524
Income tax payable 1,840 1,858
Other current liabilities 30,251 30,177
------------------- ----------------
Total current liabilities 52,456 51,336
Long-term debt, net of current portion 201,639 222,770
Minority interest in consolidated subsidiary 4,210 4,093
------------------- ----------------
Total liabilities and minority interest in consolidated subsidiary 258,305 278,199
------------------- ----------------
Stockholders' equity:
Preferred stock, $0.01 par value, 1,000,000 shares authorized, 0 shares
issued and outstanding at September 30, 2000 and June 30, 2000 - -
Common stock, $0.01 par value, 50,000,000 shares authorized,
14,202,500 issued and 11,678,357 outstanding at September 30, 2000,
14,049,850 issued and 11,525,707 outstanding at June 30, 2000 142 140
Treasury stock at cost, 2,524,143 shares at September 30, 2000
and June 30, 2000 (115,342) (115,342)
Additional paid-in capital 130,216 124,359
Retained earnings 279,825 261,363
------------------- ----------------
Total stockholders' equity 294,841 270,520
------------------- ----------------
Total liabilities and stockholders' equity $ 553,146 $ 548,719
=================== ================
</TABLE>
The accompanying notes are an integral part of
these consolidated condensed financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
ANCHOR GAMING THREE MONTHS ENDED SEPTEMBER 30,
CONSOLIDATED CONDENSED ----------------------------------------
STATEMENTS OF INCOME (UNAUDITED) 2000 1999
----------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Revenues:
Gaming machines $ 47,170 $ 40,412
Gaming operations 47,748 47,368
Gaming systems 43,832 39,221
---------------- ----------------
Total revenues 138,750 127,001
---------------- ----------------
Costs of revenues:
Gaming machines 5,982 12,557
Gaming operations 31,928 29,184
Gaming systems 30,848 20,625
---------------- ----------------
Total costs of revenues 68,758 62,366
---------------- ----------------
Gross margin 69,992 64,635
---------------- ----------------
Other costs:
Selling, general and administrative 16,814 19,572
Research and development 3,634 3,972
Depreciation and amortization 15,095 11,736
---------------- ----------------
Total other costs 35,543 35,280
---------------- ----------------
Income from operations 34,449 29,355
---------------- ----------------
Other income (expense):
Interest income 689 518
Interest expense (4,603) (3,681)
Other income 32 164
Minority interest in earnings of consolidated subsidiary (256) (208)
---------------- ----------------
Total other expense (4,138) (3,207)
---------------- ----------------
Income before provision for income taxes 30,311 26,148
Income tax provision 11,973 10,374
---------------- ----------------
Net income before cumulative effect of change in accounting principle 18,338 15,774
Cumulative effect of change in accounting principle, net of taxes of $81 124 -
---------------- ----------------
Net income $ 18,462 $ 15,774
================ ================
Basic earnings per share, before cumulative effect of change in
accounting principle $ 1.58 $ 1.32
Cumulative effect of change in accounting principle, net of taxes 0.01 -
---------------- ----------------
Basic earnings per share $ 1.59 $ 1.32
================ ================
Weighted average shares outstanding 11,618 11,934
================ ================
Diluted earnings per share, before cumulative effect of change in
accounting principle $ 1.55 $ 1.30
Cumulative effect of change in accounting principle, net of taxes 0.01 -
---------------- ----------------
Diluted earnings per share $ 1.56 $ 1.30
================ ================
Weighted average common and common equivalent
shares outstanding 11,849 12,149
================ ================
</TABLE>
The accompanying notes are an integral part of
these consolidated condensed financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
ANCHOR GAMING THREE MONTHS ENDED SEPTEMBER 30,
CONSOLIDATED CONDENSED ----------------------------------------
STATEMENTS OF CASH FLOWS (UNAUDITED) 2000 1999
----------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Net cash provided by operating activities $ 34,787 $ 14,663
---------------- ----------------
Cash flows from investing activities:
Expenditures for property and equipment and intangible assets (15,048) (22,044)
Issuance of notes receivable and other (3,324) -
Principal reductions on notes receivable and other cash receipts 2,194 817
---------------- ----------------
Net cash used in investing activities (16,178) (21,227)
---------------- ----------------
Cash flows from financing activities:
Proceeds from borrowing 11,000 5,000
Repayment of long-term debt (32,142) (6,855)
Proceeds from sale of stock 4,026 2,486
---------------- ----------------
Net cash provided by (used in) financing activities (17,116) 631
---------------- ----------------
Net increase (decrease) in cash and cash equivalents 1,493 (5,933)
Cash and cash equivalents, beginning of period 25,883 32,835
---------------- ----------------
Cash and cash equivalents, end of period $ 27,376 $ 26,902
================ ================
Supplemental disclosure of cash flow information:
Cash paid for interest $ 4,429 $ 3,249
================ ================
Cash paid for income taxes $ 10,213 $ 8,690
================ ================
</TABLE>
The accompanying notes are an integral part of
these consolidated condensed financial statements.
5
<PAGE>
ANCHOR GAMING
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF CONSOLIDATION AND PRESENTATION
Anchor Gaming ("Anchor" or the "Company") is a diversified global gaming
company that operates through three business segments: gaming machines, gaming
operations and gaming systems. The accompanying unaudited consolidated condensed
financial statements include the accounts of Anchor Gaming and subsidiaries. All
significant intercompany accounts and transactions have been eliminated. The
financial position and operating results of Colorado Grande Enterprises, Inc.
and Anchor Partners, LLC are included in the consolidated financial statements
as 80% and 51% consolidated subsidiaries, respectively.
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 and cash flows for the three-month periods
ended September 30, 2000 and 1999 and its financial position at September 30,
2000. These financial statements should be read in conjunction with the
Company's audited consolidated financial statements for the fiscal year ended
June 30, 2000. The operating results and cash flows for the three months ended
September 30, 2000 are not necessarily indicative of the results that will be
achieved in future periods.
INVESTMENTS IN UNCONSOLIDATED AFFILIATE
The joint venture with IGT ("Anchor-IGT Joint Venture") is accounted for
as an investment in an unconsolidated affiliate under the equity method.
Under the equity method, original investments are recorded at cost and
adjusted by the Company's share of earnings, losses and distributions of the
affiliate. The primary business of the Anchor-IGT Joint Venture is to
distribute gaming machines on wide-area progressive systems. The Company's
share of net earnings from the Anchor-IGT Joint Venture and related
activities are included in gaming machines revenue. The Anchor-IGT Joint
Venture has a September 30 fiscal year-end. Summarized results of operations
for the Anchor-IGT Joint Venture are as follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------------
(IN THOUSANDS) 2000 1999
--------------------------------------------------------------------
<S> <C> <C>
Revenues $110,141 $ 77,777
Expenses 46,038 38,485
Operating income 64,103 39,292
Net income 65,470 39,847
</TABLE>
Depreciation expense for the Anchor-IGT Joint Venture was $6.7 million and $4.6
million for the quarters ended September 30, 2000, and 1999, respectively.
6
<PAGE>
REVENUE RECOGNITION
In accordance with industry practice, the Company recognizes gaming
revenues as the net win from gaming operations, which is the difference between
amounts wagered by customers and payments to customers. Revenue derived from
royalty, revenue participation, or other similar short-term recurring revenue
arrangements is recognized as it accrues. Revenue is normally recognized based
on the Company's share of coins wagered, on its share of net winnings, or on the
lease rate. Revenues exclude the retail value of complimentary food and beverage
furnished gratuitously to customers.
Revenue from the sale of gaming and systems equipment and related parts is
recognized upon delivery to the customer. Revenue from sales of lottery,
pari-mutuel and video gaming central site systems (including customized software
and equipment) is recognized using the percentage of completion method of
accounting for long-term construction type contracts where costs to complete the
contract can reasonably be estimated. Prior to revenue recognition on system
sales, costs incurred are applied against progress billings and recorded as a
net accrued liability or other current asset as appropriate.
Systems contract services revenues are recognized as the services are
performed and primarily relate to revenues from long-term contracts which
require installation and operation of lottery and pari-mutuel wagering networks.
Revenues under these contracts are generally based on a percentage of sales
volume, which may fluctuate over the lives of the contracts. Liquidated damages
are expensed as incurred.
EARNINGS PER SHARE
A reconciliation of income and shares for basic and diluted earnings per
share ("EPS") is as follows:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 2000 September 30, 1999
-------------------------------------- --------------------------------------
Per Share Per Share
Income Shares Amount Income Shares Amount
----------- ----------- ----------- ------------ ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net Income $18,462 11,618 $1.59 $ 15,774 11,934 $ 1.32
Effect of Dilutive Securities:
Options 231 (0.03) 215 (0.02)
----------- ----------- ----------- ------------ ---------- -----------
Diluted EPS:
Net Income $18,462 11,849 $1.56 $ 15,774 12,149 $ 1.30
=========== =========== =========== ============ ========== ===========
</TABLE>
ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 period. Actual results could differ materially from those
estimates.
7
<PAGE>
RECLASSIFICATIONS
Certain amounts in the consolidated condensed financial statements for the
three months ended September 30, 1999 have been reclassified to be consistent
with the presentation used for the three months ended September 30, 2000.
RECENTLY ISSUED ACCOUNTING STANDARDS
During the current quarter the Company adopted SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activity" ("SFAS 133"). This statement
establishes accounting and reporting standards for derivative instruments and
requires that all derivatives be marked-to-market on an ongoing basis. The
Company's current use of derivatives is limited to an interest rate swap
arrangement for a notional amount of $100 million that the Company entered into
in fiscal 2000. During the quarter ended September 30, 2000, the Company
recorded an asset related to this swap and a cumulative effect of change in
accounting principle in the amount of $124,000, which is net of taxes of
$81,000. The interest rate swap was canceled in October 2000 and the Company
does not believe that SFAS 133 will have a significant effect on its
consolidated results of operations or financial position in future periods.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." In June 2000, the SEC staff amended SAB 101 to provide registrants
with additional time to implement SAB 101. The Company will be required to adopt
SAB 101 by the fourth quarter of fiscal 2001. The Company has not completed its
determination of the impact of the adoption of SAB 101 on its consolidated
financial position or results of operations.
2. BUSINESS SEGMENTS
The Company is a diversified global gaming company that operates through
three business segments: gaming machines, gaming operations, and gaming systems.
The gaming machines segment consists of three business units. These include the
Anchor-IGT Joint Venture; Anchor Games, which develops and distributes
proprietary gaming machines to casinos in exchange for recurring revenue
streams; and VLC Casino. Gaming operations are currently conducted through five
business units. These include two casinos in Colorado; Sunland Park Racetrack &
Casino in New Mexico (see Note 5); and gaming machine route operations in both
Nevada and Montana. The Company also has a 50% interest in a development
contract and seven year management contract with the Pala Band of Mission
Indians to develop and manage a casino currently under construction in Northern
San Diego County, California that is presently expected to open in late March
2001. The gaming systems segment consists of three business units. These are
Automated Wagering International ("AWI"), an on-line lottery company; VLC
Government; and United Tote, a pari-mutuel wagering system company.
8
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
(IN THOUSANDS) 2000 1999
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Gaming machines $ 47,288 $ 40,535
Gaming operations 47,938 47,550
Gaming systems 43,916 39,354
Intercompany revenues (392) (438)
-------------------- ----------------
$138,750 $127,001
==================== ================
Income (loss) from operations:
Gaming machines $ 33,621 $ 18,648
Gaming operations 7,253 9,105
Gaming systems (4,955) 4,178
General corporate expenses (1,470) (2,576)
-------------------- ----------------
$ 34,449 $ 29,355
==================== ================
SEPTEMBER 30, JUNE 30,
(IN THOUSANDS) 2000 2000
-------------------------------------------------------------------------------------------------------------
Identifiable segment assets:
Gaming machines $125,310 $111,882
Gaming operations 111,132 $117,188
Gaming systems 187,944 182,945
Corporate 13,300 20,340
Unallocated intangibles 115,460 116,364
-------------------- ----------------
$553,146 $548,719
==================== ================
</TABLE>
3. INVENTORY
Inventories, net of valuation reserves, are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
(IN THOUSANDS) 2000 2000
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Manufacturing:
Raw materials $ 5,693 $ 5,901
Work-in-process 739 1,593
Finished goods 7,729 7,740
Other finished goods 1,971 2,144
------------------- ----------------
$16,132 $17,378
=================== ================
</TABLE>
4. OTHER CURRENT LIABILITIES
Other current liabilities are as follows:
9
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
(IN THOUSANDS) 2000 2000
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Labor, compensation and benefits $12,209 $11,583
Commission and royalties 2,169 2,778
Billings in excess of costs and estimated earnings 1,039 3,129
Other accrued expenses 14,834 12,687
------------------ ------------
$30,251 $30,177
================== ============
</TABLE>
5. SUBSEQUENT EVENTS
STOCK PURCHASE TRANSACTION
On October 17, 2000, Anchor acquired approximately 4.6 million shares of
its common stock owned by the Fulton family for a purchase price of $66.612 per
share. To fund this transaction, on October 17, 2000, Anchor completed the sale
of $250 million of 9.875% senior subordinated notes due October 2008 that were
priced to yield 10%. Anchor also amended its existing $300 million senior credit
facility to increase the maximum borrowings, subject to certain covenants, to
$325 million. The credit facility contains a reducing feature whereby the total
amount of the available facility is reduced quarterly by $12.5 million per
quarter beginning September 30, 2001, until the total facility has been reduced
to $150 million. Stanley Fulton, his son Michael Fulton, and his daughter
Elizabeth Jones resigned their positions on the board of directors upon
completion of the stock purchase transaction.
The purchase consideration for the shares was comprised of $240 million in
cash and $66 million of 11% promissory notes that Stanley Fulton received for a
portion of the shares he is selling. The promissory notes will be canceled
through certain racetrack asset transfers (see below) which the Company expects
to complete by the end of March 2001.
RACETRACK ASSET SALE TRANSACTION
In conjunction with the stock purchase transaction with the Fulton family,
the Company has entered into an agreement with Stanley Fulton to sell him
substantially all of the assets relating to Sunland Park Racetrack & Casino,
located in New Mexico, and the Company's 25% interest in a Massachusetts horse
racing facility. Stanley Fulton has agreed to pay $66 million for these assets
by canceling the Company's obligations under the promissory notes. Anchor
expects to complete the sale of these racetrack assets to Mr. Fulton by the end
of March 2001, subject to regulatory approvals and the satisfaction of other
conditions. After the sale of these assets, Anchor will retain the right to
manage gaming operations at the Massachusetts racetrack if casino gaming is
legalized in Massachusetts. The book value of the assets to be sold, excluding
certain cash accounts, was approximately $51.9 million at September 30, 2000.
Anchor expects to record a pre-tax gain of $11.9 million, net of applicable
transaction costs. The tax expense associated with this transaction is expected
to be approximately $18.5 million.
10
<PAGE>
STOCK SPLIT
Anchor has announced a stock split under which stockholders of record as
of October 31, 2000 will receive one additional share of Anchor's common
stock for every share then owned. The new shares will be issued on November
15, 2000. Information provided in the financial statements in this Quarterly
Report on Form 10-Q has not been adjusted to reflect the stock split. If the
stock split was effective at the beginning of all periods presented, diluted
earnings per share would have been $0.78 and $0.65 for the quarters ended
September 30, 2000, and September 30, 1999, respectively. Weighted average
common and common equivalent shares outstanding would have been 23,698,000
and 24,298,000 for the quarters ended September 30, 2000 and September 30,
1999, respectively.
EXECUTIVE COMPENSATION AGREEMENTS
In connection with the purchase of the Fulton family shares in October
2000, the Board of Directors and the Special Committee charged with evaluating
the Fulton transaction adopted the Anchor Gaming 2000 Incentive Stock Plan and
made grants of 575,000 options and 120,000 shares of restricted stock in
addition to entering into employment agreements with key employees and officers
of the Company. The 2000 Incentive Stock Plan is subject to stockholder
approval.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIS REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING
OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, SECURITIES ACT OF 1933,
AS AMENDED, AND OTHER APPLICABLE SECURITIES LAWS. ALL STATEMENTS OTHER THAN
STATEMENTS OF HISTORICAL FACT ARE "FORWARD-LOOKING STATEMENTS" FOR PURPOSES OF
THESE PROVISIONS, INCLUDING ANY PROJECTIONS OF EARNINGS, REVENUES, OR OTHER
FINANCIAL ITEMS; ANY STATEMENTS OF THE PLANS, STRATEGIES, AND OBJECTIVES OF
MANAGEMENT FOR FUTURE OPERATION; ANY STATEMENTS CONCERNING PROPOSED NEW
PRODUCTS, SERVICES, OR DEVELOPMENTS; ANY STATEMENTS REGARDING FUTURE ECONOMIC
CONDITIONS OR PERFORMANCE; STATEMENTS OF BELIEF; AND ANY STATEMENT OF
ASSUMPTIONS UNDERLYING ANY OF THE FOREGOING. FORWARD-LOOKING STATEMENTS MAY
INCLUDE THE WORDS "MAY," "WILL," "ESTIMATE," "INTEND," "CONTINUE," "BELIEVE,"
"EXPECT," OR "ANTICIPATE" AND OTHER SIMILAR WORDS. SUCH FORWARD-LOOKING
STATEMENTS ARE SUBJECT TO INHERENT RISKS AND UNCERTAINTIES, AND ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED BY THE FORWARD-LOOKING
STATEMENTS. ALTHOUGH WE BELIEVE THAT THE EXPECTATIONS REFLECTED IN ANY OF OUR
FORWARD-LOOKING STATEMENTS WILL PROVE TO BE CORRECT, ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE PROJECTED OR ASSUMED IN OUR FORWARD-LOOKING STATEMENTS.
THESE RISKS AND UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO FACTORS DESCRIBED
FROM TIME TO TIME IN OUR REPORTS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, INCLUDING ANCHOR'S FORM 10-K FOR THE YEAR ENDED JUNE 30, 2000, AS
AMENDED, AND ANCHOR'S REGISTRATION STATEMENT ON FORM S-4, AS AMENDED, FILED
NOVEMBER 13, 2000. THESE REPORTS MAY BE OBTAINED FREE OF CHARGE AT THE WEBSITE
OF THE SECURITIES AND EXCHANGE COMMISSION AT http://www.sec.gov. ANCHOR GAMING
ENCOURAGES THE REVIEW OF SUCH REPORTS.
OVERVIEW
We are a diversified, global gaming company operating principally through
three business segments:
- Gaming Machines, which includes the design, development and
distribution of proprietary gaming machines.
- Gaming Operations, which includes the operations of two casinos in
Colorado, a racetrack and casino in New Mexico, slot machine routes in
Nevada and Montana, and a 50% interest in the development contract and
seven-year management contract to develop and manage a California
Native American casino that we expect to open in late March 2001.
- Gaming Systems, which includes the design, manufacture and sale of
video gaming machines and central control systems and the design,
manufacture, sale, installation and operation of on-line lottery
systems and computerized pari-mutuel wagering systems.
In September 1999, we announced the signing of development and management
agreements with the Pala Band of Mission Indians for the design, construction,
financing, operation and management of PALA, a $115 million casino and
entertainment facility on the federally recognized Pala reservation in northern
San Diego County, California. The management agreement is for a period of seven
years commencing on the opening date of the
12
<PAGE>
casino facility, which we expect to be in late March 2001. The Pala tribe
secured a $100 million credit facility through a loan agreement and ancillary
financial documents finalized on June 15, 2000. As a condition to the financing,
we agreed to guarantee the full payment and performance of the obligations of
the Pala tribe under the loan agreement. The balance of the project cost will be
financed through certain equipment financing activities.
In the fourth quarter of fiscal 2000, we restructured the operations of our
VLC subsidiary. As a result, we now manage and account for the VLC subsidiary as
two separate business units, VLC Government and VLC Casino. VLC Government
focuses on sales of central systems and video lottery gaming machines to
governmental jurisdictions under our gaming systems segment. VLC Casino, which
was formerly based in Bozeman, Montana, and is now based in Las Vegas, focuses
on the development and sales of gaming machines to casinos under our gaming
machines segment. In conjunction with this restructuring, we have changed our
financial reporting segments from four segments to the three segments outlined
above.
STOCK PURCHASE TRANSACTION
On October 17, 2000, we acquired approximately 4.6 million shares of our
common stock owned by the Fulton family for a purchase price of $66.612 per
share. To fund this transaction, on October 17, 2000, we completed the sale of
$250 million of 9.875% senior subordinated notes due October 2008 that were
priced to yield 10%. We also amended our existing $300 million senior credit
facility to increase the maximum borrowings, subject to certain covenants, to
$325.0 million. The credit facility contains a reducing feature whereby the
total amount of the available facility is reduced quarterly by $12.5 million per
quarter beginning September 30, 2001, until the total facility has been reduced
to $150 million. Stanley Fulton, his son Michael Fulton, and his daughter
Elizabeth Jones resigned their positions on our board of directors upon
completion of the stock purchase transaction.
The purchase consideration for the shares was comprised of $240 million in
cash and $66 million of 11% promissory notes that Stanley Fulton received for a
portion of the shares he is selling. The promissory notes will be canceled
through certain racetrack asset transfers (see below) which the Company expects
to complete by the end of March 2001.
RACETRACK ASSET SALE TRANSACTION
In conjunction with the stock purchase transaction with the Fulton family,
we have entered into an agreement with Stanley Fulton to sell him substantially
all of the assets relating to Sunland Park Racetrack & Casino, located in New
Mexico, and our 25% interest in a Massachusetts horse racing facility. Stanley
Fulton has agreed to pay $66.0 million for these assets by canceling our
obligations under the promissory notes. We expect to complete the sale of these
racetrack assets to Mr. Fulton by the end of March 2001, subject to regulatory
approvals and the satisfaction of other conditions. After the sale of these
assets, we will retain the right to manage gaming operations at the
Massachusetts racetrack if casino gaming is legalized in Massachusetts. The book
value of the assets to be sold, excluding certain cash accounts, was
approximately $51.9 million at September 30, 2000. We expect to record a pre-tax
gain of $11.9 million, net of applicable transaction costs. The tax expense
associated with this transaction is expected to be approximately $18.5 million.
The discussion of our gaming operations segment in this section includes Sunland
Park Racetrack & Casino.
13
<PAGE>
REVENUES AND GROSS MARGIN
The following table sets forth the percentage of Anchor's revenues
attributable to each of its operating segments during the three months ended
September 30, 2000 and 1999. The table also presents the gross margin of each of
its operating segments for the same periods.
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------------
2000 1999
------------------------------------------------------------------------
<S> <C> <C>
SOURCES OF REVENUES:
Gaming machines 34.0% 31.8%
Gaming operations 34.4 37.3
Gaming systems 31.6 30.9
---------- ----------
Total revenues 100.0% 100.0%
========== ==========
GROSS MARGIN:
Gaming machines 87.3% 68.9%
Gaming operations 33.1 38.4
Gaming systems 29.6 47.4
Total consolidated gross margin 50.4% 50.9%
</TABLE>
QUARTER ENDED SEPTEMBER 30, 2000 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1999
GAMING MACHINES
The gaming machines segment accounted for 34% and 32% of total revenues
during the three-month periods ended September 30, 2000 and 1999, respectively.
Revenues for this segment were $47.2 million for the period ended September 30,
2000, an increase of $6.8 million from $40.4 million for the same period in the
prior year. The increase in segment revenues can be attributed to increased
equity earnings in the Anchor-IGT Joint Venture, which, for accounting purposes,
are recorded net of expense partially offset by decreases in revenues from VLC
Casino as well as decreases in our non-joint venture, or stand-alone,
proprietary games.
Revenues from the Anchor-IGT Joint Venture increased $12.4 million, or 57%
from $21.8 million for the three months ended September 30, 1999 to $34.2
million for the same three-month period in the current year. At September 30,
2000 there were approximately 13,100 games, primarily Wheel of Fortune,
operating within the Anchor-IGT Joint Venture, compared to approximately 6,900
games at September 30, 1999. VLC Casino revenues decreased $5.0 million, or 66%,
resulting from declines in machine sales as we redirect our focus on the casino
gaming market in favor of recurring revenue arrangements. Revenues from
stand-alone proprietary games decreased $671,000, or 6%, for the three-month
period ending September 30, 2000 compared to the same period in the prior year.
Since September 30, 1999, our installed base of stand-alone proprietary games,
without regard to the Anchor-IGT Joint Venture games, decreased approximately
7%.
Costs of gaming machines revenues were $6.0 million for the first fiscal
quarter of 2001, a decrease of $6.6 million compared to the first fiscal quarter
of 2000. This decrease was a result
14
<PAGE>
of the decline in VLC Casino unit sales as discussed above, a lower level of
write-downs related to gaming machines within our stand-alone proprietary games
operations, and decreases in royalty expenses as a result of decreased revenues
from our stand-alone games and an overall decrease in the royalty expense rate.
The VLC casino machine sales realized in previous years had a higher relative
cost of sales than our current revenue mix.
The gaming machines segment gross margin increased to 87% during the
quarter ended September 30, 2000 from 69% in the corresponding prior-year
period. Within the segment, in this period, gross margins were 99% for the
Anchor-IGT Joint Venture (due to its accounting treatment under the equity
method), 58% for the stand-alone proprietary games operating unit and 55% for
VLC Casino.
Changes in interest rates could have an effect on the earnings of the
Anchor-IGT Joint Venture. Since jackpot expense is a function of the present
value of future jackpot payments, future changes in the interest rate
environment will affect the profitability of the Anchor-IGT Joint Venture.
Specifically, decreases in interest rates will increase the current period's
jackpot expense of the Anchor-IGT Joint Venture while future increases in
interest rates will decrease the current period's jackpot expense of the
Anchor-IGT Joint Venture.
GAMING OPERATIONS
The gaming operations segment accounted for 34% and 37% of total revenues
during the three-month periods ended September 30, 2000 and 1999, respectively.
Revenues for this segment were $47.7 million for the period ended September 30,
2000, an increase of $380,000 from $47.4 million for the same period in the
prior year. A $939,000 increase in revenues at Sunland Park Racetrack & Casino
as well as a slight increase in the Nevada route operation were offset by
decreases in the Montana route operation and slight decreases in revenues at the
Colorado casinos.
Costs of gaming operations revenues were $31.9 million for the first three
months of fiscal 2001, an increase of $2.7 million or 9% from $29.2 million in
the first three months of fiscal 2000. The increase is due primarily to
increased costs of $2.5 million at our Colorado casinos resulting from increased
competition. In addition, costs at Sunland Park Racetrack & Casino increased
primarily due to the cost associated with the increased revenues as discussed
above.
The gaming operations segment gross margin decreased to 33% during the
quarter ended September 30, 2000 from 38% in the corresponding prior-year
period. The decrease in gross margin is primarily due to increased costs in the
Colorado casinos as a result of increased competition.
GAMING SYSTEMS
The gaming systems segment accounted for 32% and 31% of total revenues
during the three-month periods ended September 30, 2000 and 1999, respectively.
Revenues for this segment were $43.8 million for the period ended September 30,
2000, an increase of $4.6 million from $39.2 million for the same period in the
prior year. The increase over the same period in fiscal year 2000 is primarily
due to increases in AWI's domestic lottery revenues related to the
15
<PAGE>
Indiana and West Virginia lottery contracts. The Indiana and West Virginia
lotteries commenced operating in October 2000 and July 2000, respectively.
Increases in domestic lottery revenues were partially offset by decreased
equipment sales internationally for a net increase in revenues of $4.8 million,
or 17%, at AWI. VLC Government's revenues decreased $416,000 in the current
quarter compared to the same quarter in the prior year due primarily to a
decrease in systems revenue partially offset by an increase in machine sales.
United Tote's pari-mutuel systems revenues increased slightly compared to the
prior year.
Costs of gaming systems revenues were $30.8 million for the first three
months of fiscal 2001, an increase of $10.2 million from $20.6 million in the
first three months of fiscal 2000. The increase is due to a $5.2 million
increase in domestic lottery costs as well as a $3.7 million increase in costs
related to international lottery equipment sales. In addition, costs of sales at
VLC Government increased $1.3 million and costs of sales at United Tote slightly
increased. The gross margin decreased from 47% during the quarter ended
September 30, 1999 to 30% in the current period. The decrease in gross margin is
due primarily to decreased margins on AWI domestic and international contracts
and on VLC Government revenues.
OTHER COSTS
Selling, general and administrative ("SG&A") expenses were $16.8 million
for the quarter ended September 30, 2000, a decrease of $2.8 million or 14% from
the quarter ended September 30, 1999. SG&A expenses as a percentage of total
revenue decreased to 12% during the September 2000 quarter compared to 15%
during the September 1999 quarter. We have been able to reduce costs through the
consolidation of corporate duties in Las Vegas and the resulting reduction of
corporate staff and other overhead in Montana. In addition, SG&A decreases have
been realized in the gaming machines and gaming operations segments. These
decreases were partially offset by increased SG&A in the gaming systems segment.
Research and development ("R&D") expenses were $3.6 million for the quarter
ended September 30, 2000, a decrease of $338,000 or 9% from the quarter ended
September 30, 1999. The decrease is a result of reduced R&D expenses in the
gaming machines segment partially offset by increased R&D in the gaming systems
segment. In addition to the R&D expenses reflected on our financial statements,
R&D costs related to the Anchor-IGT Joint Venture are accounted for on the books
of the Anchor-IGT Joint Venture and are not included in the amounts disclosed as
R&D in our financial statements.
Depreciation and amortization expense was $15.1 million for the quarter
ended September 30, 2000, an increase of $3.4 million or 29% from the quarter
ended September 30, 1999. The increase in depreciation and amortization expense
over the quarter ended September 30, 1999 is primarily related to capital
expenditures related to the Florida Lottery as well as capital expenditures
related to other domestic lottery jurisdictions.
INCOME FROM OPERATIONS. As a result of the factors discussed above, income
from operations was $34.4 million for the quarter ended September 30, 2000, an
increase of $5.1 million or 17%. As a percentage of total revenues, income from
operations increased to 25% during the quarter ended September 30, 2000 from 23%
for the quarter ended September 30, 1999.
16
<PAGE>
OTHER INCOME (EXPENSE). The $931,000 change in other expense for the
quarter ended September 30, 2000 as compared to the quarter ended September
30, 1999 is attributable to increased interest expense. The increase in
interest expense is due primarily to higher interest rates in the current
quarter as well as an increase in the average debt outstanding during the
current quarter as compared to the prior-year period.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. During the current
quarter we adopted SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activity" ("SFAS 133"). This statement establishes accounting and
reporting standards for derivative instruments and requires that all derivatives
be marked-to-market on an ongoing basis. Our current use of derivatives is
limited to an interest rate swap arrangement for a notional amount of $100
million that we entered into in fiscal 2000. During the quarter ended September
30, 2000, we recorded an asset related to this swap and a cumulative effect of
change in accounting principle in the amount of $124,000, which is net of taxes
of $81,000. The interest rate swap was canceled in October 2000 and we do not
believe that SFAS 133 will have a significant effect on our consolidated results
of operations or financial position in future periods.
NET INCOME AND EARNINGS PER SHARE. As a result of the factors discussed
above, net income was $18.5 million for the quarter ended September 30, 2000,
an increase of $2.7 million or 17% from the quarter ended September 30, 1999.
Diluted earnings per share of $1.56 for the quarter ended September 30, 2000
increased $0.26 or 20% from the quarter ended September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, we maintained $27.4 million in cash and cash
equivalents, $43.3 million in working capital (excluding $51.9 million of
current assets held for sale), and $97.1 million available under a revolving
credit facility, compared with cash and equivalents at June 30, 2000 of $25.9
million, working capital of $47.2 million, and $75.9 million available under a
revolving credit facility. To fund the acquisition of Powerhouse Technologies,
Inc., in June 1999, we borrowed $210 million on a $300 million senior unsecured
reducing revolving credit facility. Amounts drawn on the senior credit facility
bear interest at variable rates based on LIBOR plus an applicable margin or
prime rate plus an applicable margin, at our option. All borrowings under the
senior credit facility are due on June 30, 2004. We have agreed to maintain
certain financial and non-financial covenants customary with lending
arrangements of this type. We believe we are in compliance with applicable
covenants at September 30, 2000. Additionally, we have amended our existing $300
million senior credit facility to increase the maximum borrowings, subject to
certain covenants, to $325 million.
We believe that cash provided by operations will remain a significant
source of cash flows, and anticipate that both operations and draws on our
senior credit facility will provide the capital needed for continued business
growth.
On October 17, 2000 we acquired approximately 4.6 million shares of Anchor
Gaming stock owned by the Fulton family, at $66.612 per share. To fund this
transaction, on October 17, 2000, we completed the sale of $250 million of
9.875% senior subordinated notes due October 2008 that were priced to yield 10%.
We also amended our existing $300 million senior credit facility to increase the
maximum borrowings, subject to certain covenants, to $325 million. The credit
facility contains a reducing feature whereby the total amount of the available
facility is
17
<PAGE>
reduced quarterly by $12.5 million per quarter beginning September 30, 2001,
until the total facility has been reduced to $150 million. Stanley Fulton,
his son Michael Fulton, and his daughter, Elizabeth Jones resigned their
positions on the board of directors upon completion of the stock purchase
transaction.
The purchase consideration for the shares was comprised of $240 million in
cash and $66 million in promissory notes that Stanley Fulton received for a
portion of the shares he is selling. The promissory notes will be canceled
through certain racetrack asset transfers (see below) which we expect to
complete by the end of March 2001.
RACETRACK ASSET SALE TRANSACTION
In conjunction with the stock purchase transaction with the Fulton family,
we have entered into an agreement with Stanley Fulton to sell him substantially
all of the assets relating to Sunland Park Racetrack & Casino, located in New
Mexico, and the Company's 25% interest in a Massachusetts horse racing facility.
Stanley Fulton has agreed to pay $66 million for these assets by canceling our
obligations under the promissory notes. We expect to complete the sale of these
racetrack assets to Mr. Fulton by the end of March 2001, subject to regulatory
approvals and the satisfaction of other conditions. After the sale of these
assets, we will retain the right to manage gaming operations at the
Massachusetts racetrack if casino gaming is legalized in Massachusetts. The book
value of the assets to be sold, excluding certain cash accounts, was
approximately $51.9 million at September 30, 2000. We expect to record a pre-tax
gain of $11.9 million, net of applicable transaction costs. The tax expense
associated with this transaction is expected to be approximately $18.5 million.
CASH FLOWS. During the quarter ended September 30, 2000, operating
activities provided $34.8 million in cash flows on $18.5 million in net income,
compared with $14.7 million in cash flows on $15.8 million in net income during
the quarter ended September 30, 1999. Net income in the quarter ended September
30, 2000 included non-cash expenses (including depreciation and amortization) of
approximately $16.2 million compared with non-cash expenses in the quarter ended
September 30, 1999 of approximately $12.9 million. Also in the quarter ended
September 30, 2000, we recognized earnings in the Anchor-IGT Joint Venture that
were approximately $5.8 million greater than cash distributions to us, whereas
in the same quarter in 1999, we received cash distributions which were $2.4
million greater than our share of earnings in the joint venture. During the
quarter ended September 30, 2000, changes in working capital resulted in a net
cash inflow of $5.9 million compared to a net cash outflow of $16.4 million in
the same period of the prior year. The difference is primarily due to the
payment of costs associated with the Powerhouse acquisition in the prior-year
quarter.
INVESTING ACTIVITIES AND CAPITAL EXPENDITURES. During the quarter ended
September 30, 2000, cash outflows for investing activities of $16.2 million were
primarily related to the purchase and installation of assets for domestic
lottery contracts in Florida, West Virginia and other jurisdictions. We
selectively pursue opportunities to win additional and retain existing on-line
wagering contracts. If successful in obtaining new state lottery contracts,
depending on the size of the jurisdictions served, we may be required to secure
additional funding for the related capital expenditures. In the quarter ended
September 30, 1999, cash outflows for investing activities of $21.2 million were
primarily related to the purchase and installation of assets for
18
<PAGE>
domestic lottery contracts in Indiana, Florida, Pennsylvania, South Dakota
and other jurisdictions.
Our capital expenditure budget for fiscal 2001 is estimated to be between
$45.0 and $55.0 million. We believe that cash flows from operations, borrowings
under our amended senior credit facility, and existing cash balances will be
adequate to satisfy our anticipated uses of capital during the remainder of
fiscal 2001. We are, however, continually evaluating our financing needs. If
more attractive financing alternatives or expansion, development or acquisition
opportunities become available to us, we may amend our financing plans assuming
such financing would be permitted under our debt agreements.
Substantial funds are required for the operation of our gaming systems
segment and may also be required for other future projects. The source of funds
required to meet our working capital needs (including maintenance capital
expenditures) is expected to be cash flow from operations and availability under
our senior credit facility. The source of funds for our future projects may come
from cash flow from operations and availability under our senior credit
facility, additional debt or equity offerings, joint venture partners or other
sources. No assurance can be given that additional financing will be available
or that, if available, such financing will be obtainable on favorable terms.
STOCK REPURCHASE PROGRAM. In April 1997, the board of directors authorized
a repurchase of up to 1,000,000 shares of common stock. The board of directors
authorized additional repurchases of up to 514,000 shares in December 1997,
640,000 shares in October 1998, and 1,000,000 shares in March 2000. We did not
repurchase any shares during the September 2000 quarter but we have repurchased
70,000 shares since September 30, 2000, that were not related to the stock
repurchase transaction with the Fulton family. We have 751,000 authorized shares
remaining under the stock repurchase program. From the initial authorization of
the program through September 30, 2000, we have repurchased 2,524,000 shares of
common stock at a cost of $115.3 million. Under our senior credit facility, we
may repurchase during the fiscal year 50% of our prior fiscal year net income,
plus an additional one-time $35 million during the term of the facility.
WORKING CAPITAL REQUIREMENTS. In addition to cash requirements needed for
the purchase and construction of capital equipment, we require working capital
to finance customer receivables and inventory levels. At September 30, 2000,
notes receivable from customers totaled $19.4 million, compared with $19.7
million at June 30, 2000. Such receivables result primarily from gaming machine
sales. Financing gaming machine sales over short periods is common in the gaming
machine sales industry, and most of our customer notes range from one to two
years, with interest rates of up to 14%. Some international and domestic
receivables have repayment periods of up to nine years.
We continually seek opportunities to expand our 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, we may be required to obtain additional financing.
RECENTLY ISSUED ACCOUNTING STANDARDS. In December 1999, the Securities and
Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue
19
<PAGE>
Recognition in Financial Statements." In June 2000, the SEC staff amended SAB
101 to provide registrants with additional time to implement SAB 101. We will
be required to adopt SAB 101 by the fourth quarter of fiscal 2001. We have
not completed our determination of the impact of the adoption of SAB 101 on
our consolidated financial position or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates on our
floating rate debt. The principal balance of floating rate debt at September 30,
2000, was $200.5 million. To reduce such risks, we may selectively use financial
instruments. In fiscal 2000, we entered into an interest rate swap agreement for
a notional amount of $100 million. The agreement called for us to swap our
variable LIBOR rate (6.62% at September 30, 2000) for a fixed LIBOR rate of
5.93%. The variable LIBOR rate readjusted each quarter, and the agreement was
cancelable by the bank after one year. The fair value of the swap asset at
September 30, 2000 is approximately $0.2 million based on the present value of
future cash inflows expected based on the LIBOR rate at September 30, 2000. The
interest rate swap was canceled by the bank in October 2000.
The profitability of our investment in the Anchor-IGT Joint Venture is also
affected by changes in interest rates. The Anchor-IGT Joint Venture records
expenses for future jackpots based on current rates for government securities
and bank debt instruments of varying maturities, which are used to fund
liabilities to winners. As interest rates decline, our equity in the earnings of
the Anchor-IGT Joint Venture also decline.
We do not have any cash or cash equivalents at September 30, 2000 that are
subject to market risk based upon changes in interest rates. We are exposed to
the risk of foreign currency exchange rate fluctuations. As of September 30,
2000, we had accounts and notes receivable of $1.6 million denominated in
Canadian currency and $669,000 denominated in Australian currency. All foreign
receivables are expected to be collected within 12 months. We do not currently
hedge against foreign currency risk.
20
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 17, 2000, Anchor filed a complaint in U. S. District Court,
District of Nevada against former officers of Powerhouse Technologies, Inc. and
other parties. The complaint questions certain specified accounting practices
that were used prior to the acquisition.
In February 1999, GTECH Holdings Corporation filed a complaint for
declaratory judgment, injunction, and violation of the Public Records Law
against the State of Florida, Department of Lottery and AWI in the Circuit
Court, Second Judicial Circuit, in Leon County, Florida. The complaint requests
the Circuit Court to declare the contract between AWI and the Florida Lottery
void in the event the First District Court of Appeal of Florida upholds the
Florida Lottery's decision to award the on-line lottery services contract to
AWI. Subsequent to the execution of the renegotiated contract between AWI and
the Florida Lottery in March 1999, GTECH Corporation amended the complaint.
On January 28, 2000, the Circuit Court of Leon County granted GTECH
Holdings Corporation's cross motion for summary judgment on Count II of the
complaint filed by GTECH in March 1999. Count II of GTECH's complaint challenges
the validity of the amended contract entered into on March 9, 1999, between the
State of Florida, the Department of Lottery, and AWI, on the grounds that, among
other things, the amended contract is materially different from the proposal
which AWI submitted. The ruling declares null and void the amended contract
between the Florida Lottery and AWI effective February 2, 2000. The Florida
Lottery filed an appeal on February 2, 2000, and as a result, an automatic stay
of the prior order took place. The Florida Lottery and AWI filed an appeal on
March 27, 2000. The appeal is currently pending. AWI continues to provide its
on-line gaming services and products to the Florida Lottery under the terms of
the amended contract. The Company will vigorously defend and protect AWI's
rights under this lottery agreement. There can be no assurance, however, that
the Company's AWI subsidiary will be successful in its efforts or that the
ultimate results of this litigation will be favorable to the Company.
In February 1999, Anchor and the Joint Venture filed an action in U. S.
District Court, District of Nevada against Acres Gaming, Inc. ("Acres"). The
complaint alleges infringement of the Company's secondary event patents as well
as various contract breaches by Acres. In April 1999, Acres responded to the
lawsuit by filing an answer and counterclaim against Anchor and the Joint
Venture. Additionally, in April 1999, Acres filed an action in Oregon state
circuit court against Anchor and the Joint Venture alleging wrongful use of
Acres' intellectual property and breach of fiduciary duties. The Company
believes Acres' counterclaim and state circuit court lawsuit are without merit
and intends to vigorously contest the claims. The Oregon state circuit court
action has been moved to the U.S. District Court, District of Oregon, and has
been stayed pending the outcome of the Nevada actions.
Several securities class action lawsuits have been filed against Anchor and
certain current and former officers and directors. The lawsuits were filed in
various jurisdictions following the announcement in early December 1997 that the
Company's results for the December quarter might not meet analysts'
expectations. The lawsuits have been brought on behalf of a purported class of
purchasers of Anchor's stock and allege violations of state and/or federal
securities laws
21
<PAGE>
arising out of alleged misstatements and omissions to state material facts over
various periods of time covered by the suits. The lawsuits were consolidated in
Nevada, both in federal and state court. The consolidated federal action,
captioned IN RE ANCHOR GAMING SECURITIES LITIGATION, Civil Action No.
CV-S-97-01751-PMP (RJJ), was dismissed on January 6, 1999 with the court
entering a judgment in Anchor's favor. The consolidated state action, captioned
RYAN, ET AL. V. ANCHOR GAMING, ET AL., Civil No. A383456, has been stayed by
order of the court. Certain other actions have been transferred and/or
dismissed. The Company believes that the claims are without merit, and intends
to vigorously contest the lawsuits. The Company cannot presently state the
nature of further proceedings, if any, in the state or federal actions.
In addition to the specific legal proceedings described , we are a party to
several routine lawsuits arising from normal operations. We do not believe that
the outcome of such litigation will have a material adverse effect on our
consolidated financial statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K
Current Report on Form 8-K dated September 26, 2000
(b) Exhibits
27.1 Financial Data Schedule (For SEC Use Only)
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, we
have duly caused this report to be signed on our behalf by the undersigned
thereunto duly authorized.
ANCHOR GAMING
(Registrant)
Date November 14, 2000 By: /s/ THOMAS J. MATTHEWS
---------------------------------------
Thomas J. Matthews
Chief Executive Officer and President
Date November 14, 2000 By: /s/ GEOFFREY A. SAGE
---------------------------------------
Geoffrey A. Sage
Chief Financial Officer and Treasurer
Date November 14, 2000 By: /s/ DANIEL R. SICILIANO
---------------------------------------
Daniel R. Siciliano
Principal Accounting Officer
and Corporate Controller
23
