-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JK16hdcHgdEX9VRVmaxevvBrGnnyAaMI0mIWSBJ5r/HWoOFv/wMQ07+hs25lf2HI n72p1fKJNGjaOaoz3O3dew== 0000351903-97-000004.txt : 19970515 0000351903-97-000004.hdr.sgml : 19970515 ACCESSION NUMBER: 0000351903-97-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: JACKPOT ENTERPRISES INC CENTRAL INDEX KEY: 0000351903 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 880169922 STATE OF INCORPORATION: NV FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09728 FILM NUMBER: 97604127 BUSINESS ADDRESS: STREET 1: 1110 PALMS AIRPORT DR CITY: LAS VEGAS STATE: NV ZIP: 89119 BUSINESS PHONE: 7023693424 MAIL ADDRESS: STREET 2: 1110 PALMS AIRPORT DRIVE CITY: LAS VEGAS STATE: NV ZIP: 89119 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to___________________ Commission file no. 1-9728 JACKPOT ENTERPRISES, INC. (Exact name of registrant as specified in its charter) NEVADA 88-0169922 _______________________________ ____________________________________ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1110 Palms Airport Drive, Las Vegas, Nevada 89119 ___________________________________________ __________ (Address of principal executive offices) (Zip Code) 702-263-5555 ____________________________________________________ (Registrant's telephone number, including area code) 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 ___ ___ There were 9,075,305 shares of the registrant's common stock outstanding as of April 30, 1997. JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES INDEX Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets - March 31, 1997 and June 30, 1996 Condensed Consolidated Statements of Income - Three and Nine Months Ended March 31, 1997 and 1996 Condensed Consolidated Statement of Stockholders' Equity - Nine Months Ended March 31, 1997 Condensed Consolidated Statements of Cash Flows - Nine Months Ended March 31, 1997 and 1996 Notes to Condensed Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Part II. Other Information Item 6. Exhibits and Reports on Form 8-K JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) March 31, June 30, ASSETS 1997 1996 ______ _________ ________ Current assets: Cash and cash equivalents $ 43,914 $ 39,024 Prepaid expenses 1,040 1,740 Other current assets 1,787 3,515 ________ ________ Total current assets 46,741 44,279 ________ ________ Property and equipment, at cost: Land and buildings 1,535 1,535 Gaming equipment 28,120 27,839 Other equipment 4,567 4,282 Leasehold improvements 339 336 ________ ________ 34,561 33,992 Less accumulated depreciation (20,881) (20,697) ________ ________ 13,680 13,295 Lease acquisition costs and other intangible assets, net of accumulated amortization of $6,053 and $5,142 3,845 4,749 Goodwill, net of accumulated amortization of $2,506 and $2,382 4,116 4,240 Lease and other security deposits 3,436 3,436 Other non-current assets 474 743 ________ ________ Total assets $ 72,292 $ 70,742 ======== ========
See Notes to Condensed Consolidated Financial Statements. JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share data) (Concluded) March 31, June 30, LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996 ____________________________________ ________ _______ Current liabilities: Accounts payable $ 397 $ 504 Other current liabilities 3,275 3,439 _______ _______ Total current liabilities 3,672 3,943 Deferred rent 2,629 3,025 Other liabilities 543 279 _______ _______ Total liabilities 6,844 7,247 _______ _______ Commitments and contingencies Stockholders' equity: Preferred stock - authorized 1,000,000 shares of $1 par value; none issued Common stock - authorized 30,000,000 shares of $.01 par value; 9,650,743 and 9,631,278 shares issued 97 96 Additional paid-in capital 64,321 64,129 Retained earnings 6,891 2,905 Less 519,536 and 293,748 shares of common stock in treasury, at cost (5,861) (3,635) _______ _______ Total stockholders' equity 65,448 63,495 Total liabilities and _______ _______ stockholders' equity $72,292 $70,742 ======= =======
See Notes to Condensed Consolidated Financial Statements. JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME THREE AND NINE MONTHS ENDED MARCH 31, 1997 AND 1996 (Dollars in thousands, except per share data) Three Months Ended Nine Months Ended March 31, March 31, __________________ __________________ 1997 1996 1997 1996 _______ _______ _______ _______ Revenues: Route operations $22,221 $21,000 $65,154 $62,055 Casino operations 726 1,846 2,308 5,976 _______ _______ _______ _______ Totals 22,947 22,846 67,462 68,031 _______ _______ _______ _______ Costs and expenses: Route operations 17,593 16,344 51,752 47,689 Casino operations 650 1,745 2,117 5,237 Amortization 430 546 1,292 1,657 Depreciation 869 1,008 2,615 3,303 General and administrative 975 958 2,970 3,190 _______ _______ _______ _______ Totals 20,517 20,601 60,746 61,076 _______ _______ _______ _______ Operating income 2,430 2,245 6,716 6,955 _______ _______ _______ _______ Other income (expense): Interest and other income 426 463 1,229 1,177 Interest expense (22) _______ _______ _______ _______ Totals 426 463 1,229 1,155 _______ _______ _______ _______ Income before income tax 2,856 2,708 7,945 8,110 _______ _______ _______ _______ Provision for Federal income tax: Current 598 2,393 2,176 2,393 Deferred 287 (1,527) 287 202 _______ _______ _______ _______ Totals 885 866 2,463 2,595 _______ _______ _______ _______ Net income $ 1,971 $ 1,842 $ 5,482 $ 5,515 ======= ======= ======= ======= Earnings per common share $ .21 $ .20 $ .59 $ .59 ======= ======= ======= ======= Cash dividends per share of common stock $ - $ .08 $ .16 $ .24 ======= ======= ======= ======= See Notes to Condensed Consolidated Financial Statements. JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY NINE MONTHS ENDED MARCH 31, 1997 (Dollars and shares in thousands, except per share data)
Treasury Common Stock Additional Stock Total _____________ Paid-in Retained ______________ Stockholders' Shares Amount Capital Earnings Shares Amount Equity ______ ______ __________ ________ ______ _______ _____________ Balance July 1, 1996 9,631 $96 $64,129 $ 2,905 (294) $(3,635) $63,495 Cash dividends ($.16 per share) (1,496) (1,496) Repurchases of common stock (226) (2,226) (2,226) Issuance of shares on exercise of stock options 20 1 192 193 Net income 5,482 5,482 _____ ___ _______ _______ ____ _______ _______ Balance March 31, 1997 9,651 $97 $64,321 $ 6,891 (520) $(5,861) $65,448 ===== === ======= ======= ==== ======= =======
See Notes to Condensed Consolidated Financial Statements. JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED MARCH 31, 1997 AND 1996 (Dollars in thousands) 1997 1996 _______ _______ Operating activities: Net income $ 5,482 $ 5,515 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,907 4,960 Deferred Federal income tax 287 202 Net loss (gain) on sales and retirements of property and equipment 15 (344) Increase (decrease) from changes in: Prepaid expenses and other current assets 773 519 Other non-current assets (128) (107) Accounts payable (107) (233) Other current liabilities 122 686 Deferred rent (396) (216) Other liabilities 115 (274) _______ _______ Net cash provided by operating activities 10,070 10,708 _______ _______ Investing activities: Net proceeds from location operators 190 181 Proceeds from sales of subsidiary and property 1,612 1,024 Purchases of property and equipment (3,088) (3,422) Increase in lease acquisition costs and other intangible assets (365) (311) Decrease in lease and other security deposits 37 _______ _______ Net cash used in investing activities (1,651) (2,491) _______ _______ Financing activities: Repayments of long-term debt (949) Proceeds from issuance of common stock 193 33 Repurchases of common stock (2,226) Dividends paid (1,496) (2,226) _______ _______ Net cash used in financing activities (3,529) (3,142) _______ _______ Net increase in cash and cash equivalents 4,890 5,075 Cash and cash equivalents at beginning of period 39,024 32,916 _______ _______ Cash and cash equivalents at end of period $43,914 $37,991 ======= ======= Supplemental disclosures of cash flow data: Cash paid during the period for: Interest $ - $ 22 Federal income tax $ 1,600 $ 1,000
See Notes to Condensed Consolidated Financial Statements. JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1 - General: In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, necessary to present fairly Jackpot's financial position as of March 31, 1997, the results of its operations for the three and nine months ended March 31, 1997 and 1996 and its cash flows for the nine months ended March 31, 1997 and 1996. Information included in the condensed consolidated balance sheet as of June 30, 1996 has been derived from Jackpot's Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended June 30, 1996 (the "1996 Form 10-K"). The earnings for the three and nine months ended March 31, 1997 and 1996 are not necessarily indicative of results for a full year. In March 1995, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"), which is effective for fiscal years beginning after December 15, 1995. SFAS 121 requires that long-lived assets and certain identifiable intangible assets to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The adoption of SFAS 121, which was effective July 1, 1996, had no effect on the consolidated financial statements. In October 1995, the FASB issued Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123"), which is effective for fiscal years beginning after December 15, 1995. Although SFAS 123 encourages an entity to measure compensation by applying the fair value method of accounting for employee stock-based compensation arrangements, it permits an entity to continue to account for employee stock-based compensation arrangements under the provisions of Accounting Principles Board Opinion 25 ("ABP 25"). The Company intends to continue to account for stock-based compensation in accordance with APB 25. The pro forma effect on net income and earnings per share, as if the fair value recognition provisions had been applied, will be provided in a note to the consolidated financial statements for the fiscal year ending June 30, 1997, as required by SFAS 123. In February 1997, the FASB issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"), which is effective for periods, including interim periods, ending after December 15, 1997. Earlier adoption of the statement is not permitted. SFAS 128 establishes standards for computing and presenting earnings per share ("EPS"), including the replacement of the presentation of primary EPS with the presentation of basic EPS, as defined. Upon adoption of SFAS 128, all prior-period EPS data presented shall be restated to conform with the provisions of the statement. As required by SFAS 128, Jackpot will adopt this statement for the three month period ending December 31, 1997. Management believes that the implementation of SFAS 128 will not have a significant impact on EPS. Note 2 - Earnings per share: Earnings per share for the three and nine months ended March 31, 1997 and 1996 are computed by dividing net income by the weighted average number of common shares outstanding. Stock options and warrants have been excluded from the computations because they had no effect on earnings per share. Note 3 - Stockholders' equity: Cash dividends: For the nine months ended March 31, 1997, Jackpot paid cash dividends of approximately $1,496,000 ($.16 per common share). On October 29, 1996, Jackpot's Board of Directors announced that it would suspend future payment of quarterly cash dividends, subject to periodic review and reconsideration. The 1992 Incentive and Non-qualified Stock Option Plan: On September 30, 1996, the exercise price of the June 30, 1996 grant of nonqualified stock options to purchase an aggregate of 110,000 shares of common stock (27,500 each to four directors) was vested at $10.00 per share, the fair market value of the stock on that date, pursuant to the terms of the 1992 Incentive and Non-qualified Stock Option Plan (the "1992 Plan"). See Note 7 of Notes to Consolidated Financial Statements in the 1996 Form 10-K for further information regarding the 1992 Plan and option grants. Common stock in treasury: Jackpot purchased 140,653 and 225,788 shares of its common stock at the market price on the date of purchase for a total cost of approximately $1,389,000 and $2,226,000, or an average of $9.88 and $9.86 per share during the three and nine months ended March 31, 1997, respectively. Purchases during the nine months ended March 31, 1997 include 55,174 shares acquired from American Country Insurance Company for approximately $545,000 (the market price on the date of purchase). Two directors of Jackpot were directors and indirect beneficial owners of an aggregate of more than 51% of the common stock of such insurance company at the time of such purchase. Note 4 - Commitments and contingencies: Legal matter: On August 17, 1992, Phar-Mor, Inc. ("Phar-Mor"), a large chain store, announced that it had filed for protection under Chapter 11 of the U.S. Bankruptcy Code. Jackpot operated 51 gaming machines at three Phar-Mor store locations in Nevada under a license agreement dated February 10, 1990 (the "Original Agreement"). Under the Original Agreement, Jackpot made certain advances to Phar-Mor. Thereafter, Jackpot and Phar-Mor, subject to bankruptcy court approval, entered into an amended license agreement, dated January 1, 1993 (the "Amended Agreement"). If the Amended Agreement were to become final, Jackpot would receive credits for certain prepaid sums but would be required to pay certain additional obligations. On May 12, 1995, Phar-Mor announced the closing of 41 stores, including its three stores in Nevada. On May 24, 1995 Jackpot notified Phar-Mor that it was in default under (i) the Original Agreement, and (ii) the Amended Agreement to the extent applicable. Jackpot has taken the position that the Amended Agreement has not become operative and has not replaced the Original Agreement. Jackpot has claimed monetary damages in excess of several millions of dollars resulting from Phar-Mor's alleged default, consisting of, but not limited to certain refundable monies, prepaid license fees, lost profits and other consequential and incidental damages. On July 25, 1995, Phar-Mor notified Jackpot that it disagreed with Jackpot's position that Phar-Mor has defaulted under the terms of either the Original Agreement or the Amended Agreement. Phar-Mor maintains that the Amended Agreement is the operative agreement and is seeking to enforce its rights thereunder. On or about March 7, 1996, Phar-Mor filed a lawsuit against Jackpot in the United States Bankruptcy Court for the Northern District of Ohio, claiming it is owed approximately $1 million under the Amended Agreement. Jackpot has filed an answer and counterclaim reflecting its position that under the Original Agreement Jackpot is owed in excess of $3 million. Jackpot, based upon discussions with counsel, does not believe it is probable that Phar-Mor will prevail in this matter. If Phar-Mor were to prevail and the Amended Agreement is determined to be the operative agreement, Jackpot could be liable for certain obligations under the Amended Agreement up to approximately $1 million. If Jackpot were to prevail, it would become an unsecured creditor with respect to its claims against Phar-Mor which exceed $3 million. Note 5 - Subsequent events: Leases: In April 1997, Jackpot entered into four agreements for long-term contract extensions which take effect July 1, 1997. Each agreement provides Jackpot the continued right to operate at certain existing locations and future locations, if any, of such customers. Presently, these agreements involve the operation of approximately 1,174 gaming machines in 76 locations. Future minimum lease payments (dollars in thousands) under non- cancelable operating leases or licenses, including the agreements described above, will aggregate approximately $162,106 at June 30, 1997, payable as follows: $32,958 in 1998; $33,092 in 1999; $25,552 in 2000; $22,458 in 2001; $22,349 in 2002; and $25,697 thereafter. Item 2. Management's Discussion and Analysis of Financial _________________________________________________ Condition and Results of Operations ___________________________________ Capital Resources and Liquidity _______________________________ Cash Flows: Jackpot's principal sources of cash for the nine months ended March 31, 1997 (the "1997 nine months"), consisted primarily of the cash flows from operating activities and its available cash and cash equivalents which, at June 30, 1996, approximated $39.0 million and at March 31, 1997 approximated $43.9 million. Net cash provided by operating activities in the 1997 nine months was $10.1 million. Net cash used in investing activities in the 1997 nine months was approximately $1.7 million which included cash received of approximately $1.8 million and cash used of approximately $3.5 million. The $1.8 million of cash received from investing activities consisted primarily of the proceeds from the sale of Jackpot's interest in Jackpot City, Inc. (the "Nugget"), a casino operation located in Reno, Nevada. The $3.5 million of cash used was primarily for the purchase of property and equipment. Net cash used in financing activities in the 1997 nine months was approximately $3.5 million which resulted from payments for repurchases of common stock and dividends of approximately $2.2 million and $1.5 million, respectively, net of approximately $.2 million of proceeds from the issuance of common stock upon the exercise of stock options. Liquidity: At March 31, 1997, Jackpot had cash and cash equivalents of approximately $43.9 million, an increase of approximately $4.9 million from June 30, 1996. Jackpot's working capital and current ratio also increased to approximately $43.1 million and 12.7 to 1, respectively, at March 31, 1997, from $40.3 million and 11.2 to 1, respectively, at June 30, 1996 primarily as a result of the activities described above. On October 29, 1996, Jackpot's Board of Directors announced that it would suspend future payment of quarterly cash dividends, subject to periodic review and reconsideration. Further, the Board authorized Jackpot's management to repurchase up to 500,000 shares of its common stock, from time to time, at prevailing market prices. On May 24, 1995, Jackpot notified Phar-Mor, Inc. ("Phar-Mor"), a large chain store, that it was in default under the terms of certain agreements. On July 25, 1995, Phar-Mor notified Jackpot that it disagreed with Jackpot's position and asserted that Jackpot was in default under the terms of an amended agreement. On or about March 7, 1996, Phar-Mor filed a lawsuit against Jackpot in the United States Bankruptcy Court for the Northern District of Ohio, claiming it is owed approximately $1 million under the amended agreement. Jackpot has filed an answer and counterclaim reflecting its position that under an original agreement Jackpot is owed in excess of $3 million. Jackpot, based upon discussions with counsel, does not believe it is probable that Phar-Mor will prevail in this matter. If Phar-Mor were to prevail, Jackpot could be liable for certain obligations up to $1 million. If Jackpot were to prevail, it would become an unsecured creditor of Phar-Mor in an amount in excess of $3 million. See Note 9 of Notes to Consolidated Financial Statements in the 1996 Form 10-K for further information regarding this matter. Management believes Jackpot's working capital and cash provided by operations will be sufficient to enable Jackpot to meet its planned capital expenditures and other cash requirements for the remainder of the fiscal year ending June 30, 1997. With respect to planned capital expenditures, management anticipates Jackpot will purchase approximately $2.0 million of property and equipment, exclusive of business acquisitions, if any, in the remainder of fiscal 1997 to be used in existing and currently planned new locations. Jackpot continues to selectively explore expansion opportunities, both in and outside Nevada, and various potential acquisitions, both gaming and nongaming. Management believes working capital and cash provided by operations will be sufficient to enable Jackpot to pursue expansion opportunities; however, Jackpot may seek additional debt or equity financing to facilitate expansion opportunities and potential acquisitions. Other: In March 1995, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"), which is effective for fiscal years beginning after December 15, 1995. SFAS 121 requires that long-lived assets and certain identifiable intangible assets to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The adoption of SFAS 121, which was effective July 1, 1996, had no effect on the consolidated financial statements. In October 1995, the FASB issued Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123"), which is effective for fiscal years beginning after December 15, 1995. Although SFAS 123 encourages an entity to measure compensation by applying the fair value method of accounting for employee stock-based compensation arrangements, it permits an entity to continue to account for employee stock-based compensation arrangements under the provisions of Accounting Principles Board Opinion 25 ("ABP 25"). The Company intends to continue to account for stock-based compensation in accordance with APB 25. The pro forma effect on net income and earnings per share, as if the fair value recognition provisions had been applied, will be provided in a note to the consolidated financial statements for the fiscal year ending June 30, 1997, as required by SFAS 123. In February 1997, the FASB issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"), which is effective for periods, including interim periods, ending after December 15, 1997. Earlier adoption of the statement is not permitted. SFAS 128 establishes standards for computing and presenting earnings per share ("EPS"), including the replacement of the presentation of primary EPS with the presentation of basic EPS, as defined. Upon adoption of SFAS 128, all prior-period EPS data presented shall be restated to conform with the provisions of the statement. As required by SFAS 128, Jackpot will adopt this statement for the three month period ending December 31, 1997. Management believes that the implementation of SFAS 128 will not have a significant impact on EPS. Results of Operations _____________________ Revenues: Total revenues in the three months ended March 31, 1997 (the "1997 three months") increased approximately $.1 million (from $22.8 million in the three months ended March 31, 1996 (the "1996 three months") to $22.9 million in the 1997 three months), while total revenues in the 1997 nine months decreased approximately $.5 million (from $68.0 million in the nine months ended March 31, 1996 (the "1996 nine months") to $67.5 million in the 1997 nine months). The increase in total revenues of $.1 million in the 1997 three months was the net result of an increase of $1.2 million (from $21.0 million in the 1996 three months to $22.2 million in the 1997 three months) in gaming machine route operations ("route operations") revenues and a decrease of $1.1 million (from $1.8 million in the 1996 three months to $.7 million in the 1997 three months) in casino operations revenues. The decrease in total revenues of $.5 million in the 1997 nine months was the net result of an increase of $3.1 million (from $62.1 million in the 1996 nine months to $65.2 million in the 1997 nine months) in route operations revenues and a decrease of $3.6 million (from $5.9 million in the 1996 nine months to $2.3 million in the 1997 nine months) in casino operations revenues. The increases in route operations revenues in the 1997 three months and 1997 nine months of $1.2 million and $3.1 million, respectively, resulted from a combination of additional revenues generated from new and existing locations, net of lost revenues from terminated locations. New locations generated revenues of approximately $1.5 million and $3.9 million and existing locations generated additional revenues of $.7 million and $2.1 million in the 1997 three months and 1997 nine months, respectively. Terminated locations had generated revenues of $1.0 million and $2.9 million in the 1996 three months and 1996 nine months, respectively. The amount of route operations revenues attributable to fixed payment leases and revenue sharing contracts for the three and nine months ended March 31, 1997 and 1996 are summarized below (dollars in thousands): Three Months Ended March 31, ____________________________________________ 1997 1996 ____________________ ___________________ Percent Percent of route of route operations operations Amount revenues Amount revenues Route operations: _______ __________ _______ __________ Fixed payment leases $15,074 67.8% $13,521 64.4% Revenue sharing contracts 7,147 32.2 7,479 35.6 _______ _____ _______ _____ Totals $22,221 100.0% $21,000 100.0% ======= ===== ======= ===== Nine Months Ended March 31, ____________________________________________ 1997 1996 ____________________ ____________________ Percent Percent of route of route operations operations Amount revenues Amount revenues Route operations: _______ __________ _______ __________ Fixed payment leases $43,392 66.6% $39,433 63.5% Revenue sharing contracts 21,762 33.4 22,622 36.5 _______ _____ _______ _____ Totals $65,154 100.0% $62,055 100.0% ======= ===== ======= ===== The decreases in casino operations revenues in the 1997 three months and the 1997 nine months were due primarily to the ceasing of operations at the Debbie Reynolds' Hotel and Casino effective March 31, 1996 and the sale of Jackpot's interest in the Nugget on June 30, 1996. The 1996 three months and 1996 nine months include revenues of $1.1 million and $3.6 million, respectively, which were generated at these two locations. In April 1997, Jackpot entered into agreements for long-term contract extensions with four of its largest retail chain store customers, two of which were not due to expire June 30, 1997. Despite a long-term relationship with a privately held Northern Nevada-based chain store customer, Jackpot was not willing to agree with the terms sought for a contract extension, which management believed were uneconomic. The present agreement, which expires on June 30, 1997, involves the operation of approximately 272 gaming machines in 16 locations. During the 1997 nine months, Jackpot generated approximately 6% of its total revenues and a significant amount of operating income from operations at such customer's locations. The expiration of this agreement will have an adverse effect on the Company's results of operations for periods beginning July 1, 1997, however, management believes that recently opened locations and projected revenues from presently scheduled openings of new chain store locations through fiscal 1998 will replace a portion of the revenues generated at such lost customer's locations. During the 1997 nine months, Jackpot commenced operations in 6 chain store locations aggregating 90 gaming machines. In addition, at the present time, Jackpot's chain store customers have indicated their intention to open 12 locations, which will add an additional 180 machines during fiscal 1998. While management believes these plans are realistic, no assurance can be given with respect to the ultimate number of future openings, machines or timing. See Item 1 - Business - Gaming Machine Route Operations in the 1996 Form 10-K for a further description of the Company's lease and license agreements. Costs and expenses: With respect to the four agreements for long-term contract extensions described above, a very competitive pricing environment caused the Company to offer significant increases in location rent over the existing agreements. If such increases in location rent, which are effective July 1, 1997, are not offset by increases in revenues, or by reductions in operating costs, the extension of the agreements will have an adverse effect on the Company's results of operations for periods beginning July 1, 1997. Such agreements provide Jackpot the continued right to operate gaming machines at certain existing locations and future locations, if any, of such customers. Presently, these agreements involve the operation of approximately 1,174 gaming machines in 76 locations. Route operations expenses in the 1997 three months and 1997 nine months increased approximately $1.3 million (from $16.3 million in the 1996 three months to $17.6 million in the 1997 three months) and $4.1 million (from $47.7 million in the 1996 nine months to $51.8 million in the 1997 nine months) and, as a percentage of route operations revenues, increased to 79.2% and 79.4% in the 1997 three months and 1997 nine months, respectively, from 77.8% and 76.8% in the 1996 three months and 1996 nine months, respectively. The increases of $1.3 million and $4.1 million over the respective 1996 periods were attributable to increases of $.7 million and $2.3 million, respectively, in location rent, increases of $.1 million and $.3 million, respectively, in payroll costs, increases of $.3 million and $.8 million, respectively, in workers' compensation and group health costs and increases of $.2 million and $.7 million respectively, in other route operations expenses. Route operations expenses increased as a percentage of route operations revenues in the respective 1997 periods primarily because of an increase in location rent, as a percentage of revenues, attributable to revenue sharing contracts and to increases in the costs and expenses described above. Casino operations expenses in the 1997 three months and 1997 nine months decreased approximately $1.1 million (from $1.7 million in the 1996 three months to $.6 million in the 1997 three months) and $3.1 million (from $5.2 million in the 1996 nine months to $2.1 million in the 1997 nine months). With respect to casino operations expenses, the 1996 three months and 1996 nine months include approximately $1.1 million and $3.1 million of costs and expenses incurred by the Nugget and the casino operations at the Debbie Reynolds' Hotel and Casino. Amortization expense in the 1997 three months and 1997 nine months decreased approximately $.1 million (from $.5 million in the 1996 three months to $.4 million in the 1997 three months) and $.4 million (from $1.7 million in the 1996 nine months to $1.3 million in the 1997 nine months). The decrease in amortization expense in the respective 1997 periods was primarily attributable to reductions in amortization expense related to lease acquisition costs and prior service costs associated with the Jackpot Retirement Plan for Directors. The 1997 three months and 1997 nine months did not include any amortization expense of prior service costs as all such costs had been fully amortized at June 30, 1996. Depreciation expense in the 1997 three months and 1997 nine months decreased approximately $.1 million (from $1.0 million in the 1996 three months to $.9 million in the 1997 three months) and $.7 million (from $3.3 million in the 1996 nine months to $2.6 million in the 1997 nine months). The decrease in depreciation expense in the 1997 nine months was primarily attributable to gaming machines acquired in connection with the purchase of a gaming machine route business in 1992, which had become fully depreciated during the three months ended September 30, 1995. General and administrative expenses in the 1997 three months remained constant at approximately $1.0 million compared to the 1996 three months, and in the 1997 nine months decreased approximately $.2 million (from $3.2 million in the 1996 nine months to $3.0 million in the 1997 nine months). The decrease in general and administrative expenses in the 1997 nine months was due primarily to decreases in payroll and other compensation related costs. Other: The effective tax rate in the 1997 three months and 1997 nine months was 31%, which was slightly lower than the 32% rate in the 1996 three months and 1996 nine months primarily because of the increase in tax benefits from tax-exempt interest income. General: Operating income in the 1997 three months increased approximately $.2 million (from $2.2 million in the 1996 three months to $2.4 million in the 1997 thee months) and decreased approximately $.2 million (from $6.9 million in the 1996 nine months to $6.7 million in the 1997 nine months). The increase in operating income in the 1997 three months resulted primarily from the decreases in amortization and depreciation expenses previously described. The decrease in operating income in the 1997 nine months resulted primarily from decreases in the operating margin of the route operations and casino operations of approximately $1.0 million and $.5 million, respectively, net of an overall decrease in amortization, depreciation and general and administrative expenses of approximately $1.3 million. The decrease of $1.0 million (from $14.4 million in the 1996 nine months to $13.4 million in the 1997 nine months) in the route operations operating margin was due principally to the increase in location rent expense as previously described. The decrease of $.5 million (from $.7 million in the 1996 nine months to $.2 million in the 1997 nine months) in the casino operations operating margin was due primarily to the ceasing of operations at the Debbie Reynolds' Hotel and Casino and the sale of Jackpot's interest in the Nugget, described above. Net income in the 1997 three months increased approximately $.2 million (from $1.8 million in the 1996 three months to $2.0 million in the 1997 three months) and in the 1997 nine months remained constant at approximately $5.5 million compared to the 1996 nine months due to the results of operations described above. Earnings per share in the 1997 three months and 1997 nine months were $.21 and $.59 per share, respectively, compared to earnings per share in the 1996 three months and 1996 nine months of $.20 and $.59, respectively. Forward-looking statements: Certain information included in this Form 10-Q and other materials filed or to be filed by the Company with the Securities and Exchange Commission contains statements that may be considered forward-looking. In addition, from time to time, the Company may release or publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of the Company's business include, but are not limited to, competitive pressures, the loss or nonrenewal of any of Jackpot's significant contracts, conditioning or suspension of any gaming license, adverse results of significant litigation matters, possible future financial difficulties of a significant customer and the continued growth of the gaming industry and population in Nevada. Readers are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date thereof. The Company assumes no obligation to update or supplement forward-looking statements as a result of new circumstances or subsequent events. PART II. OTHER INFORMATION _________________ Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit 11.1 - Computation of Earnings Per Common Share for the three and nine months ended March 31, 1997 and 1996. Exhibit 27.1 - Financial Data Schedule (EDGAR version only). (b) Reports on Form 8-K - No Form 8-K was filed for the three months ended March 31, 1997. Signature _________ 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. JACKPOT ENTERPRISES, INC. _________________________ (Registrant) By: /s/ Bob Torkar _________________________ BOB TORKAR Senior Vice President - Finance, Treasurer and Chief Accounting Officer Date: May 14, 1997 EX-11 2 EXHIBIT 11.1 JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE THREE AND NINE MONTHS ENDED MARCH 31, 1997 and 1996 (Dollars and shares in thousands, except per share data) Three Months Ended Nine Months Ended March 31, March 31, __________________ __________________ 1997 1996 1997 1996 ______ _______ ______ _______ Primary: Earnings: Net income $1,971 $ 1,842 $5,482 $ 5,515 ====== ======= ====== ======= Shares: Weighted average number of common shares outstanding (A) 9,172 9,305 9,287 9,303 ====== ======= ====== ======= Primary earnings per share $ .21 $ .20 $ .59 $ .59 ====== ======= ====== ======= Fully diluted (B): Earnings: Net income $1,971 $ 1,842 $5,482 $ 5,515 Add after-tax interest, net (C) 44 129 138 867 ______ _______ ______ _______ Net income, as adjusted $2,015 $ 1,971 $5,620 $ 6,382 ====== ======= ====== ======= Shares: Weighted average number of common shares outstanding 9,172 9,305 9,287 9,303 Common shares issuable upon exercise of stock options and warrants, net of common shares assumed to be repurchased from the proceeds using the greater of the average market price for the period or the period-end price 267 799 271 1,588 ______ _______ ______ _______ Weighted average number of common shares and common share equivalents outstanding, as adjusted 9,439 10,104 9,558 10,891 ====== ======= ====== ======= Fully diluted earnings per share $ .21 $ .20 $ .59 $ .59 ====== ======= ====== =======
___________________________ (A) Common shares issuable upon exercise of stock options and warrants, net of common shares assumed to be repurchased from the proceeds at the average market price for the period have been excluded from the computation because they had no effect on primary earnings per share. (B) These calculations are submitted in accordance with Regulation S-K Item 601 (b) (ii) although not required by Footnote 2 to paragraph 14 of APB Opinion No. 15 because they had no effect on earnings per share. (C) Amounts represent a decrease in interest expense and an increase in interest income as a result of the assumed reduction in borrowings and increase in investments in U. S. government securities from the application of the portion of the proceeds from the assumed exercise of stock options and warrants which were not applied towards the repurchase of outstanding common shares (equivalent to 20% of the common shares outstanding at the end of the applicable period). EX-27 3
5 This schedule contains summary financial information extracted from Jackpot's Consolidated Balance Sheets - March 31, 1997 and June 30, 1996 and its Consolidated Statements of Income - three and nine months ended March 31, 1997 and 1996 and is qualified in its entirety by reference to such financial statements. 9-MOS JUN-30-1997 JUL-01-1996 MAR-31-1997 43,914 0 0 0 0 46,741 34,561 20,881 72,292 3,672 0 0 0 97 65,351 72,292 0 67,462 0 53,869 3,469 0 0 7,945 2,463 0 0 0 0 5,482 .59 .59
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