ANCHOR GAMING, 10-Q, 2000-02-14

ANCHOR GAMING
10-Q, 2000-02-14
MISCELLANEOUS AMUSEMENT & RECREATION

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<PAGE>

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 1999

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to ____________
Commission file number 000-23124

ANCHOR GAMING
(Exact name of registrant as specified in its charter)

NEVADA 88-0304253
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

815 PILOT ROAD, SUITE G
LAS VEGAS, NEVADA
89119
(Address of principal executive offices)
(Zip Code)

(702) 896-7568
(Registrant's telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last
report)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---

Shares outstanding of each of the registrant's classes of common stock
as of February 14, 2000: 11,993,207

Class Outstanding as of February 14, 2000
----- -----------------------------------
<S> <C> 11,993,207
Common stock, $.01 par value -------------------
</TABLE>

<PAGE>

ANCHOR GAMING

FORM 10-Q
QUARTER ENDED DECEMBER 31, 1999

INDEX

Page No.
--------
<S> <C> <C>
Part I. Financial Information

Item 1. Consolidated Condensed Financial Statements

Consolidated Condensed Balance Sheets at
December 31, 1999 and June 30, 1999 (unaudited) 2

Consolidated Condensed Statements of
Income for the three months ended
December 31, 1999 and 1998 (unaudited) 3

Consolidated Condensed Statements of
Income for the six months ended
December 31, 1999 and 1998 (unaudited) 4

Consolidated Condensed Statements of Cash
Flows for the six months ended
December 31, 1999 and 1998 (unaudited) 5

Notes to Consolidated Condensed Financial Statements (unaudited) 6

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14

Part II. Other Information

Item 1. Legal Proceedings 30

Item 6. Exhibits 31

Signatures 32
</TABLE>

-1-
<PAGE>

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

ANCHOR GAMING
CONSOLIDATED CONDENSED DECEMBER 31, JUNE 30,
BALANCE SHEETS (UNAUDITED) 1999 1999
- ----------------------------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 26,646 $ 32,835
Accounts and notes receivable, net 44,930 38,526
Inventory, net 21,145 21,375
Other current assets 13,121 8,928
------------ ------------
Total current assets 105,842 101,664
Property and equipment, net 193,195 188,048
Goodwill, net 118,693 117,436
Other intangible assets, net 40,236 34,520
Investments in unconsolidated affiliates 55,212 29,053
Other long-term assets 24,348 36,448
------------ ------------
Total assets $ 537,526 $ 507,169
------------ ------------
------------ ------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 18,367 $ 21,073
Current portion of long-term debt 2,221 4,051
Income tax payable 3,563 5,146
Other current liabilities 30,168 42,486
------------ ------------
Total current liabilities 54,319 72,756
Long-term debt, net of current portion 227,014 212,805
Minority interest in consolidated subsidiary 1,309 1,255
------------ ------------
Total liabilities and minority interest in consolidated subsidiary 282,642 286,816
------------ ------------

Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized, 0 shares
issued and outstanding at December 31, 1999 and June 30, 1999 - -
Common stock, $.01 par value, 50,000,000 shares authorized,
14,026,350 issued and 11,991,207 outstanding at December 31, 1999,
13,841,750 issued and 11,866,307 outstanding at June 30, 1999 140 138
Treasury stock at cost, 2,035,143 shares at December 31, 1999
and 1,975,443 at June 30, 1999 (96,405) (93,043)
Additional paid-in capital 123,681 116,854
Retained earnings 227,468 196,404
------------ ------------
Total stockholders' equity 254,884 220,353
------------ ------------
Total liabilities and stockholders' equity $ 537,526 $ 507,169
------------ ------------
------------ ------------
</TABLE>

The accompanying notes are an integral part of these
consolidated condensed financial statements

-2-
<PAGE>

ANCHOR GAMING THREE MONTHS ENDED DECEMBER 31,
CONSOLIDATED CONDENSED -----------------------------------
STATEMENTS OF INCOME (UNAUDITED) 1999 1998
- ----------------------------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>

Revenues:
Gaming operations $ 46,200 $ 30,899
Gaming machines and systems 43,992 30,938
Lottery systems 35,806 -
Pari-mutuel systems 4,697 -
------------ -----------
Total revenues 130,695 61,837
------------ -----------
Costs of revenues:
Gaming operations 29,512 17,613
Gaming machines and systems 14,086 10,241
Lottery systems 21,531 -
Pari-mutuel systems 3,158 -
------------ -----------
Total costs of revenues 68,287 27,854
------------ -----------

Gross margin 62,408 33,983
------------ -----------
Other costs:
Selling, general and administrative 16,256 5,828
Research and development 4,606 (1,967)
Depreciation and amortization 12,493 4,181
------------ -----------
Total other costs 33,355 8,042
------------ -----------
Income from operations 29,053 25,941
------------ -----------
Other income (expense):
Interest income 494 846
Interest expense (4,134) -
Other income 43 99
Minority interest in earnings of consolidated subsidiary (126) (144)
------------ -----------
Total other income (expense) (3,723) 801
------------ -----------
Income before provision for income taxes 25,330 26,742
Income tax provision 10,042 10,095
------------ -----------
Net income $ 15,288 $ 16,647
------------ -----------
------------ -----------

Basic earnings per share $ 1.27 $ 1.37
------------ -----------
------------ -----------
Weighted average shares outstanding 11,993 12,165
------------ -----------
------------ -----------

Diluted earnings per share $ 1.25 $ 1.34
------------ -----------
------------ -----------
Weighted average common and common equivalent
shares outstanding 12,233 12,433
------------ -----------
------------ -----------
</TABLE>

The accompanying notes are an integral part of these
consolidated condensed financial statements

-3-
<PAGE>

ANCHOR GAMING SIX MONTHS ENDED DECEMBER 31,
CONSOLIDATED CONDENSED -----------------------------------
STATEMENTS OF INCOME (UNAUDITED) 1999 1998
- ----------------------------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>

Revenues:
Gaming operations $ 93,568 $ 62,430
Gaming machines and systems 90,927 64,010
Lottery systems 63,077 -
Pari-mutuel systems 10,125 -
------------ -----------
Total revenues 257,697 126,440
------------ -----------
Costs of revenues:
Gaming operations 58,695 34,828
Gaming machines and systems 28,592 17,135
Lottery systems 36,808 -
Pari-mutuel systems 6,557 -
------------ -----------
Total costs of revenues 130,652 51,963
------------ -----------
Gross margin 127,045 74,477
------------ -----------

Other costs:
Selling, general and administrative 35,828 11,742
Research and development 8,579 (947)
Depreciation and amortization 24,229 8,072
------------ -----------
Total other costs 68,636 18,867
------------ -----------
Income from operations 58,409 55,610
------------ -----------
Other income (expense):
Interest income 1,012 1,912
Interest expense (7,815) -
Other income 207 183
Minority interest in earnings of consolidated subsidiary (334) (364)
------------ -----------
Total other income (expense) (6,930) 1,731
------------ -----------
Income before provision for income taxes 51,479 57,341
Income tax provision 20,416 21,646
------------ -----------
Net income $ 31,063 $ 35,695
------------ -----------
------------ -----------

Basic earnings per share $ 2.60 $ 2.89
------------ -----------
------------ -----------
Weighted average shares outstanding 11,963 12,349
------------ -----------
------------ -----------

Diluted earnings per share $ 2.55 $ 2.82
------------ -----------
------------ -----------
Weighted average common and common equivalent
shares outstanding 12,191 12,654
------------ -----------
------------ -----------
</TABLE>

The accompanying notes are an integral part of these
consolidated condensed financial statements

-4-
<PAGE>

ANCHOR GAMING SIX MONTHS ENDED DECEMBER 31,
CONSOLIDATED CONDENSED -----------------------------------
STATEMENTS OF CASH FLOWS (UNAUDITED) 1999 1998
- ----------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>

Net cash provided by operating activities $ 19,911 $ 31,674
------------ -----------
Cash flows from investing activities:
Expenditures for property and equipment (30,014) (10,554)
Expenditures for intangible assets (7,602) (42)
Other investing activities (2,618) (752)
------------ -----------
Net cash used in investing activities (40,234) (11,348)
------------ -----------
Cash flows from financing activities:
Proceeds from borrowing 28,500 -
Repayment of long-term debt (16,130) -
Proceeds from sale of stock 5,127 124
Payments to acquire treasury stock (3,362) (28,548)
------------ -----------
Net cash provided by (used in) financing activities 14,135 (28,424)
------------ -----------
Net decrease in cash and cash equivalents (6,189) (8,098)
Cash and cash equivalents, beginning of period 32,835 73,187
------------ -----------
Cash and cash equivalents, end of period $ 26,646 $ 65,089
------------ -----------
------------ -----------

Supplemental disclosure of cash flow information:
Cash paid for interest $ 7,412 $ -
------------ -----------
------------ -----------
Cash paid for income taxes $ 15,467 $ 37,353
------------ -----------
------------ -----------
</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:

PRINCIPLES OF CONSOLIDATION

The consolidated condensed financial statements include the accounts of
Anchor Gaming and its subsidiaries (the "Company" or "Anchor"), Anchor Coin,
C.G. Investments, Inc. ("CGI"), Colorado Grande Enterprises, Inc. ("Colorado
Grande"), DD Stud, Inc. ("DD Stud"), Automated Wagering International, Inc.
("AWI"), Nuevo Sol Turf Club, Inc., Raven's D&R music, Inc., United Tote
Company, United Tote Canada, VLC, Inc., VLC of Nevada, Inc., Anchor Native
American Gaming, Inc., ("ANAG"), Anchor Pala Development LLC ("APD"), and Anchor
Pala Management LLC ("APM") (collectively the "Subsidiaries"). Through its
Subsidiaries, the Company conducts gaming operations in Nevada, New Mexico,
Montana and Colorado, and supplies system software, equipment and related
services to on-line lotteries, video lotteries, casinos and pari-mutuel
organizations throughout the world. All significant intercompany accounts and
transactions have been eliminated.

BASIS OF PRESENTATION

In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments necessary to present
fairly the results of its operations and cash flows for the three and six month
periods ended December 31, 1999 and 1998 and its financial position at December
31, 1999. These financial statements should be read in conjunction with the
Company's audited consolidated financial statements for the fiscal year ended
June 30, 1999. The operating results for the three and six months and cash flows
for the six months ended December 31, 1999 are not necessarily indicative of the
results that will be achieved in future periods.

INVESTMENTS IN UNCONSOLIDATED AFFILIATE

The Company has a 50% interest in a joint venture (the "Joint Venture")
with International Game Technology ("IGT") accounted for as an investment in
an unconsolidated affiliate under the equity method of accounting. 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 Joint Venture is to distribute gaming machines on
wide-area progressive systems. The Company's share of net earnings from the
Joint Venture and related activities are included in gaming machines and
systems revenue. The Joint Venture operates on a September 30 year-end.
Included in the December 31, 1999 accounts receivable and accounts payable
balances, are $8.0 million and $9.3 million, respectively, related to the
Company's Joint Venture operations. Summarized results of operations for the
Joint Venture are as follows:

-6-
<PAGE>

Three Months Ended Six Months Ended
---------------------- -----------------------
(IN THOUSANDS) January 1, January 2, January 1, January 2,
2000 1999 2000 1999
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 76,053 $ 71,750 $ 153,830 $ 145,540
Expenses 35,872 35,820 74,357 72,270
Operating income 40,181 35,930 79,473 73,270
Net income 41,613 36,400 81,460 74,140
</TABLE>

REVENUE RECOGNITION

The Company recognizes gaming revenues as the net win from gaming
operations, which is the difference between amounts wagered by customers and
amounts paid to customers. Gaming operations revenues exclude the retail
value of complimentary food and beverage furnished gratuitously to gaming
customers. Proprietary games revenue, included in gaming machines and systems
revenue, is derived primarily from royalty, revenue participation or other
similar short-term recurring revenue arrangements, as well as equity in the
earnings of the Company's Joint Venture with IGT, which, for accounting
purposes, is recorded net of expense. Revenues from the sale of lottery,
gaming and pari-mutuel system equipment and related parts are recognized upon
delivery to the customer. Lottery and pari-mutuel systems contract service
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. Revenues from sales of lottery systems 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 can reasonably
be estimated. Prior to revenue recognition on system sales, costs incurred
are applied against progress billings and recorded as a net other current
asset or liability as appropriate.

EARNINGS PER SHARE

A reconciliation of income and shares for basic and diluted earnings per
share (EPS) is as follows:

Three Months Ended Three Months Ended
December 31, 1999 December 31, 1998
------------------------------- -------------------------------
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 $ 15,288 11,993 $ 1.27 $ 16,647 12,165 $ 1.37
Effect of Dilutive Securities:
Options 240 (0.02) 268 (0.03)
--------- --------- --------- --------- --------- ---------
Diluted EPS:
Net Income $ 15,288 12,233 $ 1.25 $ 16,647 12,433 $ 1.34
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>

-7-
<PAGE>

Six Months Ended Six Months Ended
December 31, 1999 December 31, 1998
------------------------------- -------------------------------
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 $ 31,063 11,963 $ 2.60 $ 35,695 12,349 $ 2.89
Effect of Dilutive Securities:
Options 228 (0.05) 305 (0.07)
--------- --------- --------- --------- --------- ---------
Diluted EPS:
Net Income $ 31,063 12,191 $ 2.55 $ 35,695 12,654 $ 2.82
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>

ESTIMATES AND ASSUMPTIONS

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Significant estimates in the financial statements include
the estimated depreciable lives of property and equipment and certain
estimated liabilities and valuation reserves. Actual results could differ
materially from those estimates.

RECLASSIFICATIONS

Certain amounts in the consolidated condensed financial statements
for the three and six months ended December 31, 1998 have been reclassified
to be consistent with the presentation used for the three and six months
ended December 31, 1999.

2. ACQUISITION OF POWERHOUSE

On June 29, 1999, the Company completed the acquisition of 100% of
the outstanding common stock of Powerhouse Technologies, Inc. ("Powerhouse"
and the "Powerhouse Acquisition") for approximately $220 million plus
Powerhouse net debt of $68 million pursuant to a merger agreement. The
Powerhouse Acquisition was funded through a combination of cash and borrowing
under a $300 million reducing revolving credit facility.

The Powerhouse Acquisition was accounted for using the purchase method
of accounting. Under the purchase method of accounting, the results of
operations of any acquired company are included in the acquirer's financial
statements from the date of acquisition. Accordingly, the results of operations
and cash flows for the three and six months ended December 31, 1998 do not
include any results of operations or cash flows of Powerhouse. The following
summarized unaudited pro forma financial information assumes the Powerhouse
Acquisition occurred as of July 1, 1998. The pro forma data give effect to
actual operating results prior to the acquisition and adjustments to interest
expense, interest income, depreciation and amortization and income taxes. These
pro forma amounts do not purport to be indicative of the results that might have
been obtained if the Powerhouse Acquisition had occurred on July 1, 1998 or that
may be obtained in the future.

-8-
<PAGE>

Pro Forma Pro Forma
Three Months Ended Six Months Ended
(IN THOUSANDS, EXCEPT PER SHARE DATA) December 31, 1998 December 31, 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ 116,451 $ 228,827

Costs of revenues 62,020 114,621
---------- ----------
Gross margin 54,431 114,206
Other costs:
Selling, general and administrative 15,679 31,071
Research and development 535 4,039
Depreciation and amortization 10,305 20,106
---------- ----------
Income from operations 27,912 58,990
Net income $ 15,018 $ 31,834
---------- ----------
---------- ----------
Earnings per share:
Basic $ 1.23 $ 2.58
Diluted $ 1.21 $ 2.52
</TABLE>

The Company is continuing its efforts to finalize its evaluation of the
fair values of the assets and liabilities acquired in the Powerhouse
Acquisition. During the six months ended December 31, 1999, the Company made
adjustments to the fair values of pre-acquisition contingent liabilities for
litigation and other items, liabilities for employee terminations, accrued
liabilities for costs to exit activities, and certain other assets and
liabilities of approximately $3.3 million. Additional adjustments to the fair
values of assets and liabilities acquired, similar in nature to those recorded
during the six months ended December 31, 1999, could occur throughout the
remainder of fiscal 2000.

3. BUSINESS SEGMENTS

The Company operates primarily in four business segments as follows:
gaming operations, which includes the operation of two casinos in Colorado, slot
routes in Nevada and Montana, and a racetrack/casino in New Mexico; gaming
machines and systems, which includes the design, development, and distribution
of proprietary gaming machines and the design, manufacture, and sale of video
gaming machines and central control systems; lottery systems, which includes the
design, manufacture, sale, installation, and operation of on-line lottery
systems; and pari-mutuel systems, which includes the design, manufacture, sale,
installation, and operation of computerized pari-mutuel wagering systems
primarily for horse and dog racing tracks. The Company had no lottery of
pari-mutuel systems revenues prior to the Powerhouse Acquisition. Revenues and
income (loss) for these segments is as follows:

-9-
<PAGE>

THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
(IN THOUSANDS) 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Gaming operations $ 46,200 $ 30,899 $ 93,568 $ 62,430
Gaming machines and systems 43,992 30,938 90,927 64,010
Lottery systems 35,806 - 63,077 -
Pari-mutuel systems 4,697 - 10,125 -
--------- --------- --------- ---------
$ 130,695 $ 61,837 $ 257,697 $ 126,440
--------- --------- --------- ---------
--------- --------- --------- ---------

Income (loss) from operations:
Gaming operations $ 6,852 $ 7,551 $ 15,991 $ 16,423
Gaming machines and systems 17,110 15,359 36,629 36,854
Lottery systems 4,571 - 7,646 -
Pari-mutuel systems (451) - (220) -
General corporate expenses 971 3,031 (1,637) 2,333
--------- --------- --------- ---------
$ 29,053 $ 25,941 $ 58,409 $ 55,610
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
(IN THOUSANDS) 1999 1999
- -------------------------------------------------------------
<S> <C> <C>
Identifiable segment assets:
Gaming operations $ 105,345 $ 102,528
Gaming machines and systems 165,644 142,736
Lottery systems 96,469 77,616
Pari-mutuel systems 23,192 23,601
Corporate 29,896 44,811
Unallocated intangibles 116,980 115,877
---------- ----------
$ 537,526 $ 507,169
---------- ----------
---------- ----------
</TABLE>

4. INVENTORY

All inventories are stated at the lower of cost (first-in, first-out)
or market. Inventories, net of valuation reserves, are as follows:

DECEMBER 31, JUNE 30,
(IN THOUSANDS) 1999 1999
-----------------------------------------------------------
<S> <C> <C>
Manufacturing:
Raw materials $ 3,411 $ 5,258
Work-in-process 1,279 1,795
Finished goods 12,575 10,531
Other finished goods 3,880 3,791

-10-
<PAGE>

--------- ---------
$ 21,145 $ 21,375
--------- ---------
--------- ---------
</TABLE>

5. PROPERTY & EQUIPMENT
(IN THOUSANDS)

Property and equipment of $193,195 and $188,048 at December 31, 1999
and June 30, 1999 are net of accumulated depreciation of $62,589 and $43,468,
respectively.

6. GOODWILL & OTHER INTANGIBLE ASSETS
(IN THOUSANDS)

Goodwill of $118,693 and $117,346 at December 31, 1999 and June 30,
1999 are net of accumulated amortization of $3,408 and $1,352, respectively.
Other intangible assets of $40,236 and $34,520 at December 31, 1999 and June 30,
1999 are net of accumulated amortization of $2,996 and $1,800, respectively.

7. OTHER CURRENT LIABILITIES

Other current liabilities are as follows:

DECEMBER 31, JUNE 30,
(IN THOUSANDS) 1999 1999
---------------------------------------------------
<S> <C> <C>
Labor, compensation and
benefits $ 10,203 $ 11,160
Employee commissions and
royalties 4,137 2,600
Merger related accruals - 11,541
Accrued taxes & licenses 5,021 2,874
Other accrued expenses 10,807 14,311
--------- ---------
$ 30,168 $ 42,486
--------- ---------
--------- ---------
</TABLE>

8. COMMITMENTS AND CONTINGENCIES

LITIGATION

In February 1999, the Company 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 Company's lawsuit by filing an answer and counterclaim against the Company
and the Joint Venture. Additionally, in April 1999, Acres filed an action in
Oregon state circuit court against the Company 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.

-11-
<PAGE>

Several securities class action lawsuits have been filed against the
Company and certain of its current and former officers and directors. The
lawsuits have been brought on behalf of certain purchasers of the stock of the
Company and allege violations of state and/or federal securities laws arising
out of alleged misstatements and omissions to state material facts about the
Company 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 judgement in favor of Anchor Gaming. 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
the Company 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 February of 1999, GTECH 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
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 Anchor Gaming's subsidiary,
Automated Wagering International, Inc. ("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 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. AWI also intends to file a notice of appeal of the
Leon County Circuit Court ruling. AWI will continue to provide its on-line
gaming services and products to the Lottery under the terms of the amended
contract or, if necessary, under an interim contract. Anchor Gaming will
vigorously defend and protect its rights under this lottery agreement. There
can be no assurance, however, that Anchor's AWI subsidiary will be successful
in its efforts or that the ultimate results of this litigation will be
favorable to Anchor Gaming.

The Company is party to several routine lawsuits arising from normal
operations. Management does not believe that the outcome of such litigation
will have a material adverse effect on the consolidated financial statements
of the Company.

FUNDING COMMITMENTS

In September 1999, the Company announced the signing of a development
and management agreement with the Pala Band of Mission Indians ("the Tribe") to
develop and assist

-12-
<PAGE>

in obtaining financing for the construction of a casino and entertainment
facility near San Diego, California. The agreements have been submitted to the
National Indian Gaming Commission for approval. The development is subject to
the approval of a proposed amendment to the California Constitution that will be
voted on in March 2000 and the receipt of various other regulatory and licensing
approvals.

It is anticipated that the financing for the project will be in the
form of a credit facility with a commercial bank of approximately $100 million.
The Company expects to provide an unconditional guaranty of payment and
performance of the debt, so long as the management agreement is in place. The
guaranty is expected to be removed no sooner than six months after the opening
of the casino if certain financial thresholds are met. The Company will render
management services for the facility for seven years after the completion of
construction. Also under the terms of the agreements, the Company has committed
to advance on behalf of the Tribe up to $2.0 million to facilitate activities
related to the development of the project. The advances will be reimbursed to
the Company, plus interest, upon the Tribe securing the permanent financing for
the project. As of December 31, 1999, the Company has advanced $968,000 on
behalf of the Tribe, which is included in accounts and notes receivable, net on
the Company's balance sheet. The aforementioned agreements are all subject to
the receipt of various regulatory and licensing approvals.

9. SUBSEQUENT EVENTS

None.

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<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

THIS REPORT ON FORM 10-Q CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF SECTION 21e OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, AND OTHER APPLICABLE SECURITIES LAWS. 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. 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 THE COMPANY BELIEVES THAT THE
EXPECTATIONS REFLECTED IN ANY OF ITS FORWARD-LOOKING STATEMENTS WILL PROVE TO
BE CORRECT, ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED OR
ASSUMED IN THE COMPANY'S FORWARD-LOOKING STATEMENTS. THESE RISKS AND
UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO, FACTORS DESCRIBED FROM TIME TO
TIME IN THE COMPANY'S REPORTS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, INCLUDING ANCHOR'S FORM 10-K FOR THE YEAR ENDED JUNE 30, 1999 AND
ITS FORMS 10-Q FOR THE QUARTERS ENDED SEPTEMBER 30, 1999 AND DECEMBER 31,
1999. THESE REPORTS MAY BE OBTAINED FREE OF CHARGE AT THE WEBSITE OF THE
SECURITIES AND EXCHANGE COMMISSION AT http://www.sec.gov. ANCHOR GAMING URGES
THE REVIEW OF SUCH REPORTS.

OVERVIEW

On June 29, 1999, the Company completed the acquisition of 100% of the
outstanding common stock of Powerhouse for approximately $220 million plus
Powerhouse net debt of $68 million pursuant to a merger agreement. The
Powerhouse Acquisition was funded through a combination of cash and borrowing
under a $300 million reducing revolving credit facility. Anchor now operates in
the following business segments:

GAMING OPERATIONS, which includes the operations of two casinos in
Colorado, slot routes in Nevada and Montana, and a racetrack/casino in New
Mexico.

GAMING MACHINES AND SYSTEMS, which includes the design, development, and
distribution of proprietary gaming machines and the design, manufacture,
and sale of video gaming machines and central control systems.

LOTTERY SYSTEMS, which includes the design, manufacture, sale,
installation, and operation of on-line lottery systems.

PARI-MUTUEL SYSTEMS, which includes the design, manufacture, sale, and
operation of computerized pari-mutuel wagering systems primarily for horse
and dog racing tracks.

The Powerhouse Acquisition was accounted for using the purchase method of
accounting. As a result, the historical operating results and cash flows of the
Company for the three and six months ended December 31, 1998 do not include any
operating results or cash flows for the operations acquired in the Powerhouse
Acquisition. The following table sets forth pro forma

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<PAGE>

revenues and costs of revenues by business segment for the three and six months
ended December 31, 1998 as if the Powerhouse Acquisition occurred on July 1,
1998. These pro forma amounts do not purport to be indicative of the results
that might have been obtained if the Powerhouse Acquisition had occurred on July
1, 1998 or that may be obtained in the future.

PRO FORMA THREE MONTHS ENDED PRO FORMA SIX MONTHS ENDED
DECEMBER 31, 1998 DECEMBER 31, 1998
----------------------------------------------------------
COSTS OF COSTS OF
(IN THOUSANDS) REVENUES REVENUES REVENUES REVENUES
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gaming operations $ 36,670 $ 22,113 $ 73,849 $ 43,792
Gaming machines and systems 50,851 22,251 94,770 35,181
Lottery systems 24,244 14,389 49,872 28,958
Pari-mutuel systems 4,686 3,267 10,336 6,690
---------- ---------- ---------- ----------
Total $ 116,451 $ 62,020 $ 228,827 $ 114,621
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>

The following table sets forth the percentage of Anchor's total
historical and pro forma revenues attributable to each of its operating segments
during the three and six months ended December 31, 1999 and 1998. The table also
presents the gross margin of each of its operating segments for the same
periods.

THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------------- -------------------------------
1999 1998(a) 1998(b) 1999 1998(a) 1998(b)
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
SOURCES OF REVENUES:
Gaming operations 35.3% 50.0% 31.5% 36.3% 49.4% 32.3%
Gaming machines and systems 33.7 50.0 43.7 35.3 50.6 41.4
Lottery systems 27.4 - 20.8 24.5 - 21.8
Pari-mutuel systems 3.6 - 4.0 3.9 - 4.5
------- ------- ------- ------- ------- -------
Total revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------

GROSS MARGIN:
Gaming operations 36.1% 43.0% 39.7% 37.3% 44.2% 40.7%
Gaming machines and systems 68.0 66.9 56.2 68.6 73.2 62.9
Lottery systems 39.9 - 40.6 41.6 - 41.9
Pari-mutuel systems 32.8 - 30.3 35.2 - 35.3
------- ------- ------- ------- ------- -------
Total gross margin 47.8% 55.0% 46.7% 49.3% 58.9% 49.9%
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
</TABLE>

(a) Historical

(b) Pro forma, presented as if the Powerhouse Acquisition occurred on July 1,
1998

QUARTER ENDED DECEMBER 31, 1999 COMPARED TO QUARTER ENDED DECEMBER 31, 1998

GAMING OPERATIONS

Total revenues from gaming operations were $46.2 million for the
quarter ended December 31, 1999, an increase of $15.3 million or 49.5% from
historical quarter ended December 31, 1998. The gaming operations acquired in
the Powerhouse Acquisition accounted for the majority of the

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<PAGE>

increase in historical revenues by contributing approximately $15.5 million
to revenue for the quarter ended December 31, 1999. On a pro forma basis,
revenues from gaming operations for the quarter ended December 31, 1999
increased $9.5 million or 25.9% from pro forma revenues for the quarter ended
December 31, 1998. This increase is primarily due to increased revenues at
the Sunland Park racetrack/casino acquired in the Powerhouse Acquisition,
which commenced casino operations in February 1999. Consequently, there was
no revenue from slot operations at Sunland Park during the pro forma quarter
ended December 31, 1998.

Two casinos opened near the Colorado Central Station during 1998,
another on February 4, 2000, and one additional casino is expected to open
during the quarter ended March 31, 2000. The Company is also aware of other
casino projects in various stages of planning in the Black Hawk/Central City
market. The Company cannot predict the effect, if any, that the proposed casino
openings will have on the Company's Colorado casino operations. The Company
expects that the increased competition from new and proposed casino operations
will have a continued negative effect on revenues as well as on the costs of
gaming operations, such as marketing and promotions and costs related to
retaining and recruiting employees. Historically, revenues and casino patronage
in the Colorado casino operations are highest in the summer months and those
months unaffected by inclement weather. The Company expects this seasonal trend
to continue.

During the fourth quarter of fiscal 1999, the Company received a
termination letter from Albertson's, one of its Nevada slot route customers, due
to a change in ownership effective August 31, 1999. The Company filed for an
injunctive relief requesting to continue to operate in the locations with
certain contract modifications. The 59 machines in the four Albertson's
locations were in operation by the Company through December 31, 1999. During
January 2000, the Company settled a lawsuit with the four Albertson's locations
and as a result, effective February 1, 2000 will no longer have gaming
operations in these locations. The Company believes that the loss of the four
locations will not have a material effect on the net financial results of the
Company's Nevada route operations.

Costs of gaming operations were $29.5 million for the quarter ended
December 31, 1999, an increase of $11.9 million or 67.6% from the historical
quarter ended December 31, 1998. The gaming operations acquired in the
Powerhouse Acquisition contributed approximately $11.1 million to costs of
gaming operations during the December 1999 quarter. The remaining increase is
due primarily to increased costs in the Nevada route as a result of increased
revenues, and to a lesser extent, increased costs at the Colorado Central
Station casino resulting from increased competition and an increasingly
competitive labor market. On a pro forma basis, costs of gaming operations
increased $7.4 million or 33.5% during the quarter ended December 31, 1999
versus pro forma costs for the quarter ended December 31, 1998. This increase
is due primarily to the commencement of casino operations at the Sunland Park
racetrack/casino in February 1999. Gaming operations gross margin decreased
to 36.1% during the quarter ended December 31, 1999 from 39.7% during the pro
forma quarter ended December 31, 1998. This is due primarily to the growth in
Nevada route costs and the commencement of casino operations at the Sunland
Park racetrack/casino, both of which have lower margins than the Colorado
casino operations that historically accounted for a greater percentage of
gaming operations revenue. To a lesser extent, the decrease in gross margin
is also the result of decreased margins at the Colorado Central Station
Casino resulting from increased competition.

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<PAGE>

GAMING MACHINES AND SYSTEMS

Revenues from gaming machines and systems were $44.0 million for the
quarter ended December 31, 1999, an increase of $13.1 million or 42.4% from the
historical quarter ended December 31, 1998. The gaming machines and systems
operations acquired in the Powerhouse Acquisition accounted for approximately
$11.8 million of revenue during the quarter ended December 31, 1999. The
remaining increase was a result of increased equity earnings in the Company's
Joint Venture alliance with IGT, which, for accounting purposes, are recorded
net of expense, offset by net decreases in revenues from the Company's
stand-alone proprietary games. At December 31, 1999 there were more than 8,700
games, primarily Wheel of Fortune, operating within the Joint Venture, compared
to more than 6,300 games at December 31, 1998.

On a pro forma basis, revenues from gaming machines and systems for the
quarter ended December 31, 1999 decreased $6.9 million or 13.6% from the pro
forma revenues for the quarter ended December 31, 1998. This decrease is
primarily a result of decreased machine sales in business operations acquired
from Powerhouse, offset to some extent by the increase in revenues from
proprietary games operations as discussed above. The decrease in machine sales
in the acquired operations results both from large, non-recurring domestic and
international machine sales in the second quarter of 1998, and to a lesser
extent, a decline in casino-market machine sales, as the Company lessens its
focus on the casino gaming market. The decrease in machine sales is offset
somewhat by increases in central system parts and service revenues.

During the quarter ended December 31, 1999, the Company's installed
base of stand-alone proprietary games, without regard to its Joint Venture games
or Silver Strike product, decreased 8.1% from the quarter ended December 31,
1998. The average net win per unit for the installed base of stand-alone
proprietary games also decreased during the same period. Compared to the quarter
ended September 30, 1999, both the installed base of stand-alone games and the
average net

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<PAGE>

win per unit for the games during the quarter ended December 31, 1999
experienced slight decreases.

The Company expects the trend of decreased year over year
proprietary games revenue comparisons for stand-alone proprietary games to
continue. The decline is attributable to the reduction of the installed base,
resulting from the maturation of the stand-alone products and the effect of
cannibalization by the Video Wheel of Fortune, primarily on the Wheel of
Gold, as well as cannibalization by gaming products introduced by
competitors. The Company expects the trend of increased year over year
revenue comparisons for the Joint Venture to continue due to the popularity
of the new Video Wheel of Fortune game, which was introduced during the
quarter ended September 30, 1999.

The gaming machines and systems operations are also influenced by
seasonal fluctuations as a result of weather and casino patron traffic patterns.
The Company expects that these seasonal trends will continue in both the Joint
Venture operations and the proprietary games operations outside of the Joint
Venture. In addition, changes in interest rates could have an effect on the
earnings of the 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 Joint Venture. Specifically,
decreases in interest rates will increase the then current period's jackpot
expense of the Joint Venture while future increases in interest rates will
decrease the then current period's jackpot expense of the Joint Venture.

Nevada gaming regulators have considered a proposed regulation that
would prevent any slot machine from having cartoon characters, comic book
characters or themes based on materials intended, marketed or used primarily by
minors. During January 2000, Nevada gaming regulators approved amendments to the
regulations prohibiting gaming device themes primarily intended or marketed for
use by minors. The regulation will not effect any then current licensed gaming
machines. The Company cannot predict the affect, if any, the amendments will
have on any of its future gaming machines.

During fiscal year 1999, a bill sponsored by the Nevada Resort
Association was signed into law. The bill made provisions for increased
regulatory review of wide area progressives, addressed market accessibility to
games and required manufacturers and casino operators to pay their proportionate
share of state gaming taxes on games placed in casinos on a revenue
participation basis. This legislation has resulted in increased gaming tax
expense associated with Nevada revenues in the Joint Venture, which as a result
decreased the Company's earnings from the Joint Venture and, to a lesser extent,
has increased gaming tax expense in the Company's stand-alone proprietary games
operations outside of the Joint Venture.

The Company has developed and has begun introducing conversion games to
its casino customers. The Company, as well as Barcrest, an IGT subsidiary,
continue to develop games to be introduced under what the Company calls the
conversion opportunity. The conversion opportunity is an Anchor Gaming operation
that will be accounted for within the Joint Venture whereby Anchor will upgrade
existing, casino-owned IGT gaming machines in exchange for a fixed portion of
the future incremental revenue stream generated by the conversion. This upgrade
will generally take the form of placing a secondary bonusing type of event on or
in the existing base unit. As of December 31, 1999 the Company has received
regulatory approval in Nevada and several other jurisdictions for several
different conversion games and has placed some of the games in casinos on a
limited basis. The Company has also received regulatory approval in Nevada and
several other jurisdictions that enables the base slot machines to accept up to
45 coins per wager. This will provide the player with a multi-line, multi-coin
spinning reel slot machine experience. The Company introduced this multi-coin
feature on the conversion platform during the quarter ended September 30, 1999
and has also placed some of the games in casinos on a limited basis. The Company
cannot predict the level of success, if any, the conversion opportunity will
provide. The Company does not expect significant revenue contributions from the
conversion opportunity in fiscal 2000.

Costs of gaming machines and systems were $14.1 million for the quarter
ended December 31, 1999, an increase of $3.9 million or 38.2% from the
historical quarter ended December 31, 1998. The gaming machines and systems
operations acquired from Powerhouse accounted for an increase in historical
costs by contributing approximately $6.0 million to costs of gaming machines and
systems during the 1999 quarter. The remaining decrease is due primarily to
decreases in valuation allowances related to gaming machines within the
Company's proprietary games operations, and to a lesser extent, decreases in
royalty expenses as a result of decreased revenues

-18-
<PAGE>

from the Company's stand-alone games. On a pro forma basis, costs of gaming
machines and systems decreased $8.2 million or 36.8% due to the decreased
historical proprietary games costs and due to decreases in costs related to
decreased revenues from the operations acquired from Powerhouse. Gaming machines
and systems gross margin on a pro forma basis increased to 68.0% during the
quarter ended December 31, 1999 from 56.2% during the pro forma quarter ended
December 31, 1998. This is due primarily to the decrease in machine sales in
business operations acquired from Powerhouse, which have achieved lower margins
historically when compared to the margins achieved in the proprietary games
operations.

LOTTERY SYSTEMS

Revenues from lottery systems were $35.8 million for the quarter ended
December 31, 1999, an increase of $11.6 million or 47.9% on a pro forma basis
from the pro forma revenues for the quarter ended December 31, 1998. Prior to
the Powerhouse acquisition, the Company had no lottery systems operations. The
increase in pro forma revenues is due to increases in system and license
revenues to foreign lottery jurisdictions during the quarter ended December 31,
1999 as well as domestic lottery revenue increases. During the quarter ended
December 31, 1999, the Company continued work on its Switzerland contract
implementation, and began the installation of a lottery system in the Leeward
Islands. Domestically, increased revenues resulted both from contract
re-negotiations and commencement of operations under the Company's on-line
lottery contract with the Hoosier Lottery in Indiana. The resulting
year over year increase in revenue was partially offset by the loss of the
Montana Lottery, which provided revenue during the December 1998 quarter.

As is normal for businesses that involve sales of large system
contracts, the consumation of sales and their timing are inherently uncertain.
As a result, the Company could experience uneven revenues from period to period
and may not consumate anticipated sales in any future period.

Costs of lottery systems were $21.5 million during the quarter ended
December 31, 1999, an increase of $7.1 million or 49.3% on a pro forma basis
from the pro forma costs for the quarter ended December 31, 1998. The gross
margin on a pro forma basis decreased slightly to 39.9% in the 1999 quarter
versus 40.6% in the pro forma 1998 quarter. Although the increased system sales
in the quarter ended December 31, 1999 quarter provide high margins, the margins
on many domestic contracts have decreased, resulting in the overall consistency
of year over year gross margins.

On January 28, 2000 the Circuit Court of Leon County granted GTECH
Corporation's cross motion for summary judgment on count II of a 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 Anchor Gaming's subsidiary, Automated Wagering
International, Inc. (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 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. AWI also
intends to file a notice of appeal of the Leon County Circuit Court ruling. AWI
will continue to provide its on-line gaming services and products to the Lottery
under the terms of the amended contract or, if necessary, under an interim
contract. Anchor

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<PAGE>

Gaming will vigorously defend and protect its rights under this lottery
agreement. There can be no assurance, however, that Anchor's AWI subsidiary will
be successful in its efforts or that the ultimate results of this litigation
will be favorable to Anchor Gaming.

PARI-MUTUEL SYSTEMS

Revenues from pari-mutuel systems were $4.7 million for the quarter
ended December 31, 1999, consistent with pro forma revenues for the quarter
ended December 31, 1998. Prior to the Powerhouse acquisition, the Company had no
pari-mutuel operations. Costs of pari-mutuel systems were $3.2 million for the
quarter ended December 31, 1999, which represents a 3% decrease in costs on a
pro forma basis from the December 1998 quarter.

OTHER COSTS

Selling, general and administrative ("SG&A") expenses were $16.3
million for quarter ended December 31, 1999, an increase of $10.5 million or
181.0% from the historical quarter ended December 31, 1998. SG&A expenses as a
percentage of total revenue increased to 12.5% during the December 1999 quarter
compared to 9.4% during the historical December 1998 quarter. During the quarter
ended December 31, 1999, businesses acquired from Powerhouse contributed $10.3
million of SG&A expenses. On a pro forma basis, SG&A expenses for the quarter
ended December 31, 1999 increased $0.6 million or 3.8% over the pro forma
quarter ended December 31, 1998, due primarily to the commencement of casino
operations at Sunland Park.

Research and development ("R&D") expenses were $4.6 million for the
quarter ended December 31, 1999, an increase of $6.6 million from the
historical quarter ended December 31, 1998. During the quarter ended December
31, 1999, businesses acquired from Powerhouse contributed $3.9 million in R&D
expenses. The remaining increase resulted primarily from a one-time
settlement received from the Ontario provincial government in the prior year,
which reduced total R&D expense for the quarter ended December 31, 1998. The
Province of Ontario has mandated that the terms of the settlement be held in
confidence. On a pro forma basis, R&D expenses for the quarter ended December
31, 1999 increased $4.1 million or 820.0% from the pro forma quarter ended
December 31, 1998, resulting from increased R&D expenses in the gaming
machines and systems operations, and to a lesser extent the acquired lottery
systems operations from Powerhouse, as well as the historical increase noted
above. In addition to the R&D expenses reflected on the Company's financial
statements, R&D costs related to the Joint Venture are accounted for on the
books of the Joint Venture and are not included in the amounts disclosed as
R&D in the Company's financial statements.

Depreciation and amortization expense was $12.5 million for the quarter
ended December 31, 1999, an increase of $8.3 million or 197.6% from the
historical quarter ended December 31, 1998. During the quarter ended December
31, 1999, businesses acquired from Powerhouse contributed $7.5 million in
depreciation and amortization expense, accounting for the majority of the
historical increase. On a pro forma basis, depreciation and amortization for the
quarter ended December 31, 1999 increased $2.2 million or 21.4% from the pro
forma quarter ended December 31, 1998 due primarily to increased depreciation &
amortization expense incurred in the gaming operations and machines & systems
operations, and to a lesser extent, the lottery systems operations acquired from
Powerhouse.

-20-
<PAGE>

INCOME FROM OPERATIONS. As a result of the factors discussed above,
income from operations was $29.1 million for the quarter ended December 31,
1999, an increase of $3.2 million or 12.4% on a historical basis and $1.2
million or 4.3% on a pro forma basis from the quarter ended December 31, 1998.
As a percentage of total revenues, income from operations decreased to 22.3%
during the quarter ended December 31, 1999 from 41.9% historical and 24.0% pro
forma for the quarter ended December 31, 1998.

OTHER INCOME (EXPENSE). Interest income was $0.5 million for the
quarter ended December 31, 1999 versus $0.8 million for the historical quarter
ended December 31, 1998. The reduction is due to decreased cash balances for
investment as a result of cash spending for the Powerhouse acquisition. Interest
expense of $4.1 million for the quarter ended December 31, 1999 is the result of
borrowings associated with the Powerhouse acquisition. There was no historical
interest expense incurred in the quarter ended December 31, 1998.

NET INCOME AND EARNINGS PER SHARE. As a result of the factors discussed
above, net income was $15.3 million for quarter ended December 31, 1999, a
decrease of $1.3 million or 7.8% from the historical quarter ended December 31,
1998. On a pro forma basis, net income for the quarter ended December 31, 1999
increased $0.3 million or 1.8% from the pro forma quarter ended December 31,
1998. Diluted earnings per share of $1.25 for the quarter ended December 31,
1999 increased $0.04 or 3.5% from the pro forma quarter ended December 31, 1998.

SIX MONTHS ENDED DECEMBER 31, 1999 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1998

GAMING OPERATIONS

Total revenues from gaming operations were $93.6 million for the six
months ended December 31, 1999, an increase of $31.2 million or 50.0% from
historical six months ended December 31, 1998. The gaming operations acquired in
the Powerhouse Acquisition accounted for the majority of the increase in
historical costs by contributing approximately $30.8 million to revenue for the
six months ended December 31, 1999. On a pro forma basis, revenues from gaming
operations for the six months ended December 31, 1999 increased $19.8 million or
26.8% from pro forma revenues for the six months ended December 31, 1998. This
increase is primarily due to slot operations at the Sunland Park
racetrack/casino acquired in the Powerhouse acquisition, which commenced casino
operations in February 1999. Consequently, there was no revenue from slot
operations at Sunland Park during the pro forma six months ended December 31,
1998.

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<PAGE>

Costs of gaming operations were $58.7 million for the six months
ended December 31, 1999, an increase of $23.9 million or 68.7% from the
historical six months ended December 31, 1998. The gaming operations acquired
in the Powerhouse Acquisition contributed approximately $21.5 million to
costs of gaming operations during the December 1999 six months. The remaining
increase is due primarily to increased costs in the Nevada route as a result
of increased revenues, and to a lesser extent, increased costs at the
Colorado Central Station casino resulting from increased competition. On a
pro forma basis, costs of gaming operations increased $14.9 million or 34.0%
during the six months ended December 31, 1999 versus pro forma costs for the
six months ended December 31, 1998. This increase is due primarily to the
commencement of casino operations at the Sunland Park racetrack/casino in
February 1999. Gaming operations gross margin decreased to 37.3% during the
six months ended December 31, 1999 from 40.7% during the pro forma six months
ended December 31, 1998. This is due primarily to the growth in Nevada route
costs and the commencement of casino operations at the Sunland Park
racetrack/casino, both of which have lower margins than the Colorado casino
operations that historically accounted for a greater percentage of gaming
operations revenue. To a lesser extent, the decrease in gross margin is also
the result of decreased margins at the Colorado Central Station Casino
resulting from increased competition.

GAMING MACHINES AND SYSTEMS

Revenues from gaming machines and systems were $90.9 million for the
six months ended December 31, 1999, an increase of $26.9 million or 42.0% from
the historical six months ended December 31, 1998. The gaming machines and
systems operations acquired in the Powerhouse Acquisition accounted for
approximately $26.1 million of revenue during the six months ended December 31,
1999. The remaining increase was a result of increased equity earnings in the
Company's Joint Venture alliance with IGT, which, for accounting purposes, are
recorded net of expense, offset by net decreases in revenues from the Company's
stand-alone proprietary games. At December 31, 1999 there were more than 8,700
games, primarily Wheel of Fortune, operating within the Joint Venture, compared
to more than 6,300 games at December 31, 1998.

On a pro forma basis, revenues from gaming machines and systems for the
six months ended December 31, 1999 decreased $3.9 million or 4.1% from the pro
forma revenues for the six months ended December 31, 1998. This decrease is
primarily a result of decreased machine sales in business operations acquired
from Powerhouse, offset to some extent by the increase in revenues from
proprietary games operations as discussed above. The decrease in machine sales
in the acquired operations results both from large, non-recurring domestic and
international machine sales

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<PAGE>

during the six months ended December 31, 1998, and to a lesser extent, a decline
in casino-market machine sales, as the Company lessens its focus on the casino
gaming market. The decrease in machine sales is offset somewhat by increases in
central system parts and service revenues.

During the six months ended December 31, 1999, the Company's
installed base of stand-alone proprietary games, without regard to its Joint
Venture games or Silver Strike product, decreased 8.1% from the six months
ended December 31, 1998. The average net win per unit for the installed base
of stand-alone proprietary games also decreased during the same period.

The gaming machines and systems operations are also influenced by
seasonal fluctuations as a result of weather and casino patron traffic
patterns. The Company expects that these seasonal trends will continue in
both the Joint Venture operations and the proprietary games operations
outside of the Joint Venture. In addition, changes in interest rates could
have an effect on the earnings of the 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 Joint
Venture. Specifically, decreases in interest rates will increase the then
current period's jackpot expense of the Joint Venture while future increases
in interest rates will decrease the then current period's jackpot expense of
the Joint Venture.

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<PAGE>

Costs of gaming machines and systems were $28.6 million for the six
months ended December 31, 1999, an increase of $11.5 million or 67.3% from the
historical six months ended December 31, 1998. The gaming machines and systems
operations acquired from Powerhouse accounted for the majority of the increase
in historical costs by contributing approximately $12.8 million to costs of
gaming machines and systems during the 1999 six months. The remaining decrease
is due primarily to decreases in valuation allowances related to gaming machines
within the Company's proprietary games operations, and to a lesser extent,
decreases in royalty expenses as a result of decreased revenues from the
Company's stand-alone games. On a pro forma basis, costs of gaming machines and
systems decreased $6.6 million or 18.8% due to the decreased historical
proprietary games costs and due to decreases in costs related to decreased
revenues from the operations acquired from Powerhouse. Gaming machines and
systems gross margin on a pro forma basis increased to 68.6% during the six
months ended December 31, 1999 from 62.9% during the pro forma six months ended
December 31, 1998. This is due primarily to the decrease in machine sales in
business operations acquired from Powerhouse, which have achieved lower margins
historically when compared to the margins achieved in the proprietary games
operations.

LOTTERY SYSTEMS

Revenues from lottery systems were $63.1 million for the six months
ended December 31, 1999, an increase of $13.2 million or 26.5% on a pro forma
basis from the pro forma revenues for the six months ended December 31, 1998.
Prior to the Powerhouse acquisition, the Company had no lottery operations. The
increase is due to increases in system and license revenues to foreign lottery
jurisdictions during the six months ended December 31, 1999 as well as domestic
lottery revenue increases. During the six months ended December 31, 1999, the
Company continued work on its Switzerland contract implementation, and began the
installation of a lottery system in the Leeward Islands. Domestically, increased
revenues resulted both from contract re-negotiations and commencement of
operations under the Company's on-line lottery contract with the Hoosier Lottery
in Indiana. The resulting increase in revenue was partially offset by the loss
of the Montana

-24-
<PAGE>

Lottery, which provided revenue during the six months ended December 1998 and to
a lesser extent, decreases in domestic on-line lottery service revenues
resulting from decreased ticket sales.

Costs of lottery systems were $36.8 million during the six months ended
December 31, 1999, an increase of $7.8 or 26.9% on a pro forma basis from the
pro forma costs for the six months ended December 31, 1998. The gross margin on
a pro forma basis decreased slightly to 41.6% in the 1999 six months versus
41.9% in the pro forma 1998 six months. Although the increased system sales in
the six months ended December 31, 1999 quarter provide high margins, the margins
on many domestic contracts have decreased, resulting in the overall consistency
of year-over-year gross margins.

PARI-MUTUEL SYSTEMS

Revenues from pari-mutuel systems were $10.1 million for the six months
ended December 31, 1999, a decrease of $0.2 million or 1.9% on a pro forma basis
from the pro forma revenues for the six months ended December 31, 1998. Prior to
the Powerhouse acquisition, the Company had no pari-mutuel operations. Costs of
pari-mutuel systems were $6.6 million for the six months ended December 31,
1999, which represents a slight increase in costs on a pro forma basis from the
six months ended December 31, 1998.

OTHER COSTS

Selling, general and administrative ("SG&A") expenses were $35.8
million for six months ended December 31, 1999, an increase of $24.1 million or
206.0% from the historical six months ended December 31, 1998. SG&A expenses as
a percentage of total revenue increased to 13.9% during the six months ended
December 31, 1999 compared to 9.3% during the historical six months ended
December 31, 1998. During the six months ended December 31, 1999, businesses
acquired from Powerhouse contributed $21.8 million of SG&A expenses. The
remaining increase is due primarily to additional payroll and promotional costs
at the Company's Colorado Central Station Casino, increased legal and bad debt
costs in the Company's proprietary games operations, and increased legal and
payroll expenses at the corporate level. On a pro forma basis, SG&A expenses for
the six months ended December 31, 1999 increased $4.7 million or 15.1% over the
pro forma six months ended December 31, 1998, due primarily to the historical
increase noted above, as well as the commencement of casino operations at
Sunland Park and to a lesser extent, increased labor costs and professional fees
in the lottery systems operations.

Research and development ("R&D") expenses were $8.6 million for the
six months ended December 31, 1999, an increase of $9.5 million from the
historical six months ended December 31, 1998. During the six months ended
December 31, 1999, businesses acquired from Powerhouse contributed $7.1
million of R&D expenses. The remaining increase resulted primarily from a
one-time settlement received from the Ontario provincial government in the
prior year, which reduced total R&D expense for the six months ended December
31, 1998. The Province of Ontario has mandated that the terms of the
settlement be held in

-25-
<PAGE>

confidence. On a pro forma basis, R&D expenses for the six months ended December
31, 1999 increased $4.6 or 115.0% from the pro forma six months ended December
31, 1998, resulting from increased R&D expenses of the acquired operations
within the gaming machines and systems operations, as well as the historical
increase noted above. In addition to the R&D expenses reflected on the Company's
financial statements, R&D costs related to the Joint Venture are accounted for
on the books of the Joint Venture and are not included in the amounts disclosed
as R&D in the Company's financial statements.

Depreciation and amortization expense was $24.2 million for the six
months ended December 31, 1999, an increase of $16.1 million or 198.8% from the
historical six months ended December 31, 1998. During the six months ended
December 31, 1999, businesses acquired from Powerhouse contributed $14.2 million
in depreciation and amortization expense. The remaining historical increase
resulted from increased depreciation expense incurred in the proprietary games
operations. On a pro forma basis, depreciation and amortization for the six
months ended December 31, 1999 increased $4.1 million or 20.4% from the pro
forma six months ended December 31, 1998 due primarily to increased depreciation
& amortization expense incurred in the gaming operations and machines & systems
operations, and to a lesser extent, the lottery systems operations acquired from
Powerhouse.

INCOME FROM OPERATIONS. As a result of the factors discussed above,
income from operations was $58.4 million for the six months ended December 31,
1999, an increase of $2.8 million or 5.0% on a historical basis and a $0.6
million decrease or 1.0% on a pro forma basis from the six months ended December
31, 1998. As a percentage of total revenues, income from operations decreased to
22.7% during the six months ended December 31, 1999 from 44.0% historical and
25.8% pro forma for the six months ended December 31, 1998.

OTHER INCOME (EXPENSE). Interest income was $1.0 million for the six
months ended December 31, 1999 versus $1.9 million for the historical six months
ended December 31, 1998. The reduction is due to decreased cash balances for
investment as a result of cash spending for the Powerhouse acquisition. Interest
expense of $7.8 million for the six months ended December 31, 1999 is the result
of borrowings associated with the Powerhouse Acquisition. There was no
historical interest expense incurred in the six months ended December 31, 1998.

NET INCOME AND EARNINGS PER SHARE. As a result of the factors discussed
above, net income was $31.1 million for six months ended December 31, 1999, a
decrease of $4.6 million or 12.9% from the historical six months ended December
31, 1998. On a pro forma basis, net income for the six months ended December 31,
1999 decreased $0.7 million or 2.2% from the pro forma six months ended December
31, 1998. Diluted earnings per share of $2.55 for the six months ended December
31, 1999 increased $.03 or 1.3% from the pro forma six months ended December 31,
1998.

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOWS. At December 31, 1999, the Company maintained $26.6
million in cash and equivalents, $51.5 million in working capital, and $67.0
million available under a reducing revolving credit facility, compared with
cash and cash equivalents at June 30, 1999 of $32.8 million and working
capital of $28.9 million.

-26-
<PAGE>

During the six months ended December 31, 1999, operating activities
provided $19.2 million in cash flows on $31.1 million in net income, compared
with $31.7 million in cash flows on $35.7 million in net income during the
historical six months ended December 31, 1998.

The Company borrowed $210 million on a $300 million unsecured credit
facility to complete the Powerhouse Acquisition. The Company has agreed to
maintain certain financial and non-financial covenants customary with lending
arrangements of this type. The Company has complied with the covenants
throughout the term of the credit facility.

Prior to obtaining financing for the Powerhouse Acquisition, Anchor's
principal sources of liquidity included cash flows from operations and the net
proceeds from a secondary offering in April 1996 of $53.9 million and its
initial public offering in February 1994 of $34.1 million.

In September 1999, the Company announced the signing of a development
and management agreement with the Pala Band of Mission Indians ("the Tribe") to
develop and assist in obtaining financing for the construction of a casino and
entertainment facility near San Diego, California. The agreements have been
submitted to the National Indian Gaming Commission for approval. The development
is subject to the approval of a proposed amendment to the California
Constitution that will be voted on in March 2000 and the receipt of various
other regulatory and licensing approvals.

In October 1999, the Company made a $22 million equity contribution to
the Joint Venture with IGT to fund certain contractual expenditures. The
contribution was funded through additional borrowings on the Company's credit
facility.

EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION
(EBITDA). EBITDA for the six months ended December 31, 1999 was $82.5 million,
an increase of $19.0 million or 29.9% from $63.5 million for the historical six
months ended December 31, 1998. On a pro forma basis, EBITDA increased $3.4
million or 4.3% from $79.1 million for the pro forma six months ended December
31, 1998.

-27-
<PAGE>

EBITDA should not be construed as a substitute for operating income or
a better indicator of liquidity than cash flow from operating, investing and
financing activities, which are determined in accordance with generally accepted
accounting principles ("GAAP"), and is included herein to provide additional
information with respect to the ability of the Company to meet its future debt
service, capital expenditure and working capital requirements. Although EBITDA
is not necessarily a measure of the Company's ability to fund its cash needs,
management believes that EBITDA is a useful tool for measuring the ability of
the Company to service its debt. The Company's definition of EBITDA may not be
the same as that of similarly captioned measures used by other companies.

CAPITAL EXPENDITURES. During the six months ended December 31, 1999,
the Company spent $30.0 million on capital expenditures in addition to $7.6
million on intangible assets. Capital expenditures were primarily incurred for
the manufacture of lottery systems and equipment for the Florida, Indiana and
Pennsylvania lottery contracts and to a lesser extent, the purchase of gaming
devices and equipment for use in its proprietary games operations. Intangible
expenditures were incurred primarily for lottery contract implementations. In
the historical six months ended December 31, 1998, the Company spent $10.6
million on capital expenditures, primarily related to the purchase of gaming
devices and equipment for use in its proprietary games operations.

The Company selectively pursues opportunities to win additional and
retain existing on-line wagering contracts. If successful in obtaining new
domestic and/or international lottery contracts, and depending on the size of
the jurisdictions served, the Company may be required to secure additional
funding for the related capital expenditures. The lottery systems segment
operates in a capital-intensive industry, in which wagering terminals,
computer systems, and applications and communications software must be
installed throughout a jurisdiction, often beginning up to one year before
revenues are earned on the long-term contract. When a new jurisdiction is
added to the Company's customer base, capital required to obtain and install
hardware and software can be significant. Generally, initial contract terms
are from 5 to 7 years, often with 1 to 3 year extension options. Upon
expiration of a contract and its extensions, the jurisdiction typically
requires vendors to re-bid their services and replace existing equipment with
new equipment. An incumbent vendor may have some benefit due to the
communications infrastructure already in place, but most often, a significant
portion of the initial capital expenditures must be replaced upon the
re-awarding of a lottery contract.

STOCK REPURCHASE. During the quarter ended December 31, 1999, the
Company repurchased 59,700 shares of its common stock at a cost of $3.4 million.
The Company did not repurchase any of its common stock during the quarter ended
September 30, 1999. 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 513,975 shares in December 1997 and
640,400 shares in October 1998. As of December 31, 1999, the Company had
repurchased 1,844,375 shares of Common Stock at a cost of $93.3 million. At
December 31, 1999 there was a balance of 310,000 authorized shares remaining
under the repurchase program.

WORKING CAPITAL REQUIREMENTS. In addition to cash requirements needed
for the purchase and construction of capital equipment and the implementation of
long-term lottery contracts, working capital is necessary to finance customer
receivables and inventory levels. At December 31, 1999, notes receivable from
customers relating to product sales within the gaming machines

-28-
<PAGE>

and systems segment totaled $12.9 million. Because management expects continued
growth of this segment, it intends to continue financing sales when advantageous
to the Company, which may result in increased receivable balances. Financing
gaming machine sales over short periods is common in the gaming machine sales
industry, and most of the Company's customer notes range from one to two years,
with interest rates of up to 14%. Certain international and domestic receivables
have repayment periods of up to nine years.

The Company continually seeks opportunities to expand its gaming
oriented businesses in new and existing gaming jurisdictions and is currently
pursuing additional opportunities in Native American gaming in California. If
successful in pursuing another opportunity in any gaming oriented business
and depending on the amount of funding required, the Company may be required
to obtain additional financing and/or restructure its current financing.

YEAR 2000

The Company has conducted a comprehensive review of its computers
and other systems deemed to be date sensitive (as well as those of its
unconsolidated affiliates) to assess its exposure to the Year 2000 Problem.
Management believes that the Company's critical systems were Year 2000
compliant as of December 31, 1999.

The Company believes that no material adverse impact has occurred on
its production capabilities, processes or other operational departments reliant
on computer systems resulting from the Year 2000 issues. The Company also
believes that there is no material impact from the Year 2000 issues on its
consolidated financial position, results of operations or cash flows. However,
certain ongoing risks exist relative to the non-compliance of third parties with
operational significance to the Company. Accordingly, there can be no assurance
that the Company will not be adversely impacted in the future by Year 2000
issues.

To date, the Company has incurred approximately $0.5 million of
costs directly associated with the Year 2000 readiness. The future costs
associated with Year 2000 compliance are not anticipated to be material to
the Company's consolidated financial position, results of operations or cash
flows.

-29-
<PAGE>

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

-30-
<PAGE>

the prior order took place. AWI also intends to file a notice of appeal of the
Leon County Circuit Court ruling. AWI will continue to provide its on-line
gaming services and products to the Lottery under the terms of the amended
contract or, if necessary, under an interim contract. Anchor Gaming will
vigorously defend and protect its rights under this lottery agreement. There can
be no assurance, however, that Anchor's AWI subsidiary will be successful in its
efforts or that the ultimate results of this litigation will be favorable to
Anchor Gaming.

The Company is party to several routine lawsuits arising from normal
operations. Management does not believe that the outcome of such litigation will
have a material adverse effect on the consolidated financial statements of the
Company.

ITEM 6. (d) EXHIBITS

See index to exhibits

-31-
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized

ANCHOR GAMING
(Registrant)

Date February 14, 2000 /s/Michael D. Rumbolz
--------------------- ---------------------
Michael D. Rumbolz
Chief Executive Officer and
President

Date February 14, 2000 /s/Geoffrey A. Sage
--------------------- --------------------
Geoffrey A. Sage
Chief Financial Officer and
Treasurer

-32-
<PAGE>

INDEX TO EXHIBITS

EXHIBITS
- --------
<S> <C>
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 Corporation 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 Michael B. Fulton in favor of Stanley E. Fulton
dated January 19, 1999. (Incorporated by reference to exhibit 9.10 to
the Company's June 30, 1999 Annual Report on Form 10-K (File No.
0-23124)).

9.2 Irrevocable Proxy of Stanley M. Fulton in favor of Stanley E. Fulton
dated January 19, 1999. (Incorporated by reference to exhibit 9.11 to
the Company's June 30, 1999 Annual Report on Form 10-K (File No.
0-23124)).

9.3 Irrevocable Proxy of Elizabeth F. Jones in favor of Stanley E. Fulton
dated January 19, 1999. (Incorporated by reference to exhibit 9.12 to
the Company's June 30, 1999 Annual Report on Form 10-K (File No.
0-23124)).
<PAGE>

9.4 Irrevocable Proxy of Lucinda F. Tischer in favor of Stanley E. Fulton
dated January 19, 1999. (Incorporated by reference to exhibit 9.13 to
the Company's June 30, 1999 Annual Report on Form 10-K (File No.
0-23124)).

9.5 Irrevocable Proxy of Deborah J. Fulton in favor of Stanley E. Fulton
dated January 19, 1999. (Incorporated by reference to exhibit 9.14 to
the Company's June 30, 1999 Annual Report on Form 10-K (File No.
0-23124)).

9.6 Irrevocable Proxy of Maryland Park Apartments, Inc. in favor of Stanley
E. Fulton dated January 22, 1999. (Incorporated by reference to exhibit
9.15 to the Company's June 30, 1999 Annual Report on Form 10-K (File
No. 0-23124)).

9.7 Irrevocable Proxy of Virginia L. Fulton in favor of Stanley E. Fulton
dated January 19, 1999. (Incorporated by reference to exhibit 9.16 to
the Company's June 30, 1999 Annual Report on Form 10-K (File No.
0-23124)).

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)).

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)).

<PAGE>

10.11 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)).

10.12 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)).

10.13 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)).

10.14 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)).

10.15 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)).

10.16 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)).

10.17 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)).

10.18 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)).

10.19 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)).

10.20 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)).

10.21 Form of Indemnification Agreement between the Company and Officers and
Directors. (Incorporated by reference to Exhibit 10.28 to the Company's
June 30, 1994 Annual Report on Form 10-K (File No. 0-23124)).

10.22 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)).

10.23 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)).

10.24 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)).

10.25 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)).

<PAGE>

10.26 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)).

10.27 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)).

10.28 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)).

10.29 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)).

10.30 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)).

10.31 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)).

10.32 Consulting Agreement by and between Anchor Gaming, a Nevada Corporation
and Richard M. Haddrill dated as of April 13, 1999. (Incorporated by
reference to Exhibit 10.34 to the Company's June 30, 1999 Annual Report
on Form 10-K (File No. 0-21324)).

10.33 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. (Incorporated by
reference to Exhibit 10.35 to the Company's June 30, 1999 Annual Report
on Form 10-K (File No. 0-21324)).

10.34 Form of Stock Option Agreement (Incorporated by reference to Exhibit
10.36 to the Company's June 30, 1999 Annual Report on Form 10-K (File
No. 0-21324)).

27.1* Financial Data Schedule.
</TABLE>

-----------
* Filed herewith

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANCHOR
GAMING CONSOLIDATED CONDENSED BALANCE SHEETS, STATEMENTS OF INCOME AND
STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 26,646,000
<SECURITIES> 0
<RECEIVABLES> 44,930,000
<ALLOWANCES> 0
<INVENTORY> 21,145,000
<CURRENT-ASSETS> 105,842,000
<PP&E> 193,195,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 537,526,000
<CURRENT-LIABILITIES> 54,288,000
<BONDS> 0
0
0
<COMMON> 140,000
<OTHER-SE> 254,775,000
<TOTAL-LIABILITY-AND-EQUITY> 537,526,000
<SALES> 0
<TOTAL-REVENUES> 130,695,000
<CGS> 0
<TOTAL-COSTS> 68,287,000
<OTHER-EXPENSES> 33,355,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (4,139,000)
<INCOME-PRETAX> 25,330,000
<INCOME-TAX> 10,092,000
<INCOME-CONTINUING> 15,288,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 15,288,000
<EPS-BASIC> 1.27
<EPS-DILUTED> 1.25

</TABLE>