-----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, NSk1K0hd0vvNmdOC1AmlrlbXKT+mZTs2B5A5W1CGF9FYCGkcXQb/28rCO9+k2InG Zus0CGdUdFdKYeTvV+f42w== 0000351903-98-000005.txt : 19980512 0000351903-98-000005.hdr.sgml : 19980512 ACCESSION NUMBER: 0000351903-98-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980511 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: SEC FILE NUMBER: 001-09728 FILM NUMBER: 98615061 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 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 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 8,856,039 shares of the registrant's common stock outstanding as of May 4, 1998. JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES INDEX Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets - March 31, 1998 and June 30, 1997 Condensed Consolidated Statements of Income - Three and Nine Months Ended March 31, 1998 and 1997 Condensed Consolidated Statement of Stockholders' Equity - Nine Months Ended March 31, 1998 Condensed Consolidated Statements of Cash Flows - Nine Months Ended March 31, 1998 and 1997 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 1998 1997 ______ ________ ________ Current assets: Cash and cash equivalents $ 50,196 $ 47,945 Prepaid expenses 1,144 1,438 Other current assets 1,912 1,728 ________ ________ Total current assets 53,252 51,111 ________ ________ Property and equipment, at cost: Land and buildings 1,535 1,535 Gaming equipment 28,864 28,202 Other equipment 4,703 4,595 Leasehold improvements 343 339 ________ ________ 35,445 34,671 Less accumulated depreciation (19,802) (21,582) ________ ________ 15,643 13,089 Lease acquisition costs and other intangible assets, net of accumulated amortization of $4,432 and $6,198 2,377 3,596 Goodwill, net of accumulated amortization of $2,671 and $2,547 3,950 4,074 Lease and other security deposits 3,200 2,959 Other non-current assets - 438 ________ ________ Total assets $ 78,422 $ 75,267 ======== ========
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 1998 1997 ____________________________________ ________ ________ Current liabilities: Accounts payable $ 675 $ 375 Other current liabilities 3,384 4,407 _______ _______ Total current liabilities 4,059 4,782 Deferred rent 2,316 2,510 Deferred income tax 748 633 Other liabilities 61 61 _______ _______ Total liabilities 7,184 7,986 _______ _______ 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; 9,845,477 and 9,823,993 shares issued 98 98 Additional paid-in capital 66,277 66,033 Retained earnings 14,646 9,253 Less 890,638 and 741,958 shares of common stock in treasury, at cost (9,783) (8,103) _______ _______ Total stockholders' equity 71,238 67,281 _______ _______ Total liabilities and stockholders' equity $78,422 $75,267 ======= =======
See Notes to Condensed Consolidated Financial Statements. JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME THREE AND NINE MONTHS ENDED MARCH 31, 1998 AND 1997 (Dollars in thousands, except per share data) Three Months Ended Nine Months Ended March 31, March 31, __________________ _________________ 1998 1997 1998 1997 _______ _______ _______ _______ Revenues: Route operations $22,667 $22,221 $67,534 $65,154 Casino operations 704 726 2,114 2,308 _______ _______ _______ _______ Totals 23,371 22,947 69,648 67,462 _______ _______ _______ _______ Costs and expenses: Route operations 18,303 17,593 55,206 51,752 Casino operations 616 650 2,034 2,117 Amortization 289 430 851 1,292 Depreciation 986 869 2,751 2,615 General and administrative 992 975 2,878 2,970 _______ _______ _______ _______ Totals 21,186 20,517 63,720 60,746 _______ _______ _______ _______ Operating income 2,185 2,430 5,928 6,716 _______ _______ _______ _______ Other income: Interest and other income 435 426 1,460 1,229 _______ _______ _______ _______ Totals 435 426 1,460 1,229 _______ _______ _______ _______ Income before income tax 2,620 2,856 7,388 7,945 _______ _______ _______ _______ Provision for Federal income tax: Current 669 598 1,912 2,176 Deferred 39 287 83 287 _______ _______ _______ _______ Totals 708 885 1,995 2,463 _______ _______ _______ _______ Net income $ 1,912 $ 1,971 $ 5,393 $ 5,482 ======= ======= ======= ======= Basic earnings per share $ .21 $ .21 $ .60 $ .59 ======= ======= ======= ======= Diluted earnings per share $ .21 $ .21 $ .59 $ .59 ======= ======= ======= ======= Cash dividends per share of common stock $ - $ - $ - $ .16 ======= ======= ======= =======
See Notes to Condensed Consolidated Financial Statements. JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY NINE MONTHS ENDED MARCH 31, 1998 (Dollars and shares in thousands) Additional Treasury Total Common Stock Paid-in Retained Stock Stockholders' _____________ Capital Earnings _______________ Equity Shares Amount Shares Amount ______ ______ ___________ _________ ______ _______ ____________ Balance July 1, 1997 9,824 $98 $66,033 $ 9,253 (742) $(8,103) $67,281 Repurchases of common stock (149) (1,680) (1,680) Issuance of shares on exercise of stock options 21 244 244 Net income 5,393 5,393 _____ ___ _______ _______ ____ _______ _______ Balance March 31, 1998 9,845 $98 $66,277 $14,646 (891) $(9,783) $71,238 ===== === ======= ======= ==== ======= =======
See Notes to Condensed Consolidated Financial Statements. JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED MARCH 31, 1998 AND 1997 (Dollars in thousands) 1998 1997 _______ _______ Operating activities: Net income $ 5,393 $ 5,482 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,602 3,907 Deferred income tax 83 287 Increase (decrease) from changes in: Prepaid expenses and other current assets 189 773 Other non-current assets (214) (113) Accounts payable 300 (107) Other current liabilities (749) 122 Deferred rent 407 (396) Other liabilities 115 _______ _______ Net cash provided by operating activities 9,011 10,070 _______ _______ Investing activities: Net proceeds from location operators 134 190 Proceeds from sales of subsidiary and property 325 1,612 Purchases of property and equipment (5,674) (3,088) Increase in lease acquisition costs and other intangible assets (109) (365) _______ _______ Net cash used in investing activities (5,324) (1,651) _______ _______ Financing activities: Proceeds from issuance of common stock 244 193 Repurchases of common stock (1,680) (2,226) Dividends paid (1,496) _______ _______ Net cash used in financing activities (1,436) (3,529) _______ _______ Net increase in cash and cash equivalents 2,251 4,890 Cash and cash equivalents at beginning of period 47,945 39,024 _______ _______ Cash and cash equivalents at end of period $50,196 $43,914 ======= ======= Supplemental disclosures of cash flow data: Cash paid during the period for: Federal income tax $ 2,000 $ 1,600
See Notes to Condensed Consolidated Financial Statements. JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1 - General: The accompanying unaudited condensed consolidated financial statements included herein have been prepared by Jackpot pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. 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, 1998, the results of its operations for the three and nine months ended March 31, 1998 and 1997 and its cash flows for the nine months ended March 31, 1998 and 1997. The earnings for the three and nine months ended March 31, 1998 and 1997 are not necessarily indicative of results for a full year. Information included in the condensed consolidated balance sheet as of June 30, 1997 has been derived from Jackpot's Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended June 30, 1997 (the "1997 Form 10-K"). These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and disclosures included in the 1997 Form 10-K. In February 1997, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 129, "Disclosure of Information about Capital Structure" ("SFAS 129"), which is effective for fiscal periods ending after December 15, 1997. SFAS 129 establishes standards for disclosing information about an entity's capital structure. Management intends to comply with the disclosure requirements of this statement. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which is effective for fiscal years beginning after December 15, 1997. SFAS 130 requires companies to classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. Management does not believe this statement will have a material impact on the consolidated financial statements. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131, "Disclosure About Segments of an Enterprise and Related Information" ("SFAS 131"), which is effective for fiscal years beginning after December 15, 1997. SFAS 131 establishes additional standards for segment reporting in the financial statements. Management has not determined the extent of the disclosure required by SFAS 131. Note 2 - Earnings per share: 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. As required by SFAS 128, Jackpot adopted this statement for the three months ended December 31, 1997. 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. All prior-period EPS data presented has been restated to conform with the provisions of the statement. The implementation of SFAS 128 had no effect on EPS, as restated, for the three and nine months ended March 31, 1997. Basic EPS for the three and nine months ended March 31, 1998 and 1997 is computed by dividing net income by the weighted average number of common shares outstanding for the respective period. Diluted EPS for the three and nine months ended March 31, 1998 and 1997 is computed by dividing net income by the weighted number of common and common equivalent shares outstanding for the respective period. Options to purchase common stock, whose exercise price was greater than the average market price for the respective period, have been excluded from the computation of diluted EPS. Such antidilutive options outstanding for the three months ended March 31, 1998 and 1997 were 130,000 and 751,000, respectively, and for the nine months ended March 31, 1998 and 1997 were 169,000 and 754,000, respectively. The following is the amount of income and number of shares used in the basic and diluted EPS computations (dollars and shares in thousands, except per share data): Three Months Ended Nine Months Ended March 31, March 31, __________________ _________________ 1998 1997 1998 1997 ______ ______ ______ ______ Basic earnings per share: Earnings: Income available to common stockholders $1,912 $1,971 $5,393 $5,482 ====== ====== ====== ====== Shares: Weighted average number of common shares outstanding 8,949 9,172 9,035 9,287 ====== ====== ====== ====== Basic earnings per share $ .21 $ .21 $ .60 $ .59 ====== ====== ====== ====== Diluted earnings per share: Earnings: Income available to common stockholders $1,912 $1,971 $5,393 $5,482 Effect of dilutive securities - - - - ______ ______ ______ ______ Income, as adjusted $1,912 $1,971 $5,393 $5,482 ====== ====== ====== ====== Shares: Weighted average number of common shares outstanding 8,949 9,172 9,035 9,287 Common shares issuable upon assumed exercise of dilutive stock options 1,718 1,342 1,739 1,343 Less common shares assumed to be repurchased by application of the treasury stock method to the proceeds using the average market price for the period (1,482) (1,272) (1,556) (1,273) ______ ______ ______ ______ Weighted average number of common shares and common share equivalents outstanding 9,185 9,242 9,218 9,357 ====== ====== ====== ====== Diluted earnings per share $ .21 $ .21 $ .59 $ .59 ====== ====== ====== ======
Note 3 - Stockholders' equity: The 1992 Incentive and Non-qualified Stock Option Plan: On September 30, 1997, the exercise price of the June 30, 1997 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 $11.50 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 5 of Notes to Consolidated Financial Statements in the 1997 Form 10-K for further information regarding the 1992 Plan and option grants. Common stock in treasury: Jackpot purchased 148,680 and 103,700 shares of its common stock at the market price on the date of purchase for a total cost of approximately $1,681,000 and $1,251,000, or an average of $11.31 and $12.06 per share during the nine months ended March 31, 1998 and one month ended April 30, 1998, respectively. Note 4 - Commitments and contingencies: Litigation settlement: In March 1996, Phar-Mor, Inc. ("Phar-Mor"), a large chain store, 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 an amended license agreement dated January 1, 1993 (the "Amended Agreement"). Jackpot filed an answer and counterclaim and certain proofs of claim reflecting its position that under a license agreement dated February 10, 1990 (the "Original Agreement"), Jackpot is owed in excess of $3 million. See Note 7 of Notes to Consolidated Financial Statements in the 1997 Form 10-K for a summary of these actions. In December 1997, the Court granted partial summary judgment in favor of Phar-Mor and against Jackpot, and set the matter for trial for determination of final damages. In order to avoid further litigation and to finally and fully resolve all claims between the parties, Jackpot entered into a settlement agreement and mutual release with Phar-Mor, effective February 6, 1998. Pursuant to the terms of the agreement, both the Original Agreement and the Amended Agreement are terminated and neither party has any remaining rights or continuing obligations to the other under the Original Agreement, the Amended Agreement or the proofs of claim. The cost of the settlement to Jackpot has been fully accrued as of December 31, 1997 and was paid in February 1998. 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, 1998 (the "1998 nine months"), consisted of the cash flows from operating activities and its available cash and cash equivalents which, at June 30, 1997, was $47.9 million and at March 31, 1998 was $50.2 million. Net cash provided by operating activities for the 1998 nine months was $9.0 million, compared to $10.1 million provided by operating activities for the nine months ended March 31, 1997 (the "1997 nine months"). Net cash used in investing activities for the 1998 nine months increased $3.7 million, from $1.6 million used in investing activities for the 1997 nine months to $5.3 million used in investing activities for the 1998 nine months. The 1997 nine months includes the receipt of $1.3 million from the sale of Jackpot's interest in a casino subsidiary. Cash used in investing activities for purchases of property and equipment increased $2.6 million, from $3.1 million for the 1997 nine months to $5.7 million for the 1998 nine months. Primarily, as a result of the transactions described above, net cash used in investing activities increased by $3.7 million. Net cash used in financing activities for the 1998 nine months was $1.4 million, and resulted from payments for repurchases of common stock of $1.7 million, net of proceeds of approximately $.3 million from the issuance of common stock upon the exercise of stock options. The net cash used in financing activities for the 1997 nine months was approximately $2.1 million greater than the net cash used in financing activities for the 1998 nine months principally due to payments of dividends of $1.5 million for the 1997 nine months. Liquidity: At March 31, 1998, Jackpot had cash and cash equivalents of $50.2 million, an increase of $2.3 million from June 30, 1997. Jackpot's working capital increased to $49.2 million at March 31, 1998, from $46.3 million at June 30, 1997 primarily as a result of the activities described above. On October 29, 1996, Jackpot's Board of Directors authorized management to repurchase up to 500,000 shares of Jackpot's common stock at prevailing market prices. Subsequently, on January 22, 1998, such authorization was increased from 500,000 to 1,000,000 shares. From the authorization on October 29, 1996 through April 1998, Jackpot has repurchased approximately 536,000 shares of common stock at a cost of $5.7 million. 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, 1998. With respect to planned capital expenditures, management anticipates Jackpot will purchase approximately $1.5 million of property and equipment, exclusive of business acquisitions, if any, in the remainder of fiscal 1998 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. Recently Issued Accounting Standards: In February 1997, the Financial Accounting Standards Board (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. As required by SFAS 128, Jackpot adopted this statement for the three months ended December 31, 1997. 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. All prior-period EPS data presented has been restated to conform with the provisions of the statement. The implementation of SFAS 128 had no effect on EPS, as restated, for the three and nine months ended March 31, 1997. In February 1997, the FASB issued Statement of Financial Accounting Standards No. 129, "Disclosure of Information about Capital Structure" ("SFAS 129"), which is effective for fiscal periods ending after December 15, 1997. SFAS 129 establishes standards for disclosing information about an entity's capital structure. Management intends to comply with the disclosure requirements of this statement. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which is effective for fiscal years beginning after December 15, 1997. SFAS 130 requires companies to classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. Management does not believe this statement will have a material impact on the consolidated financial statements. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131, "Disclosure About Segments of an Enterprise and Related Information" ("SFAS 131"), which is effective for fiscal years beginning after December 15, 1997. SFAS 131 establishes additional standards for segment reporting in the financial statements. Management has not determined the extent of the disclosure required by SFAS 131. Results of Operations _____________________ Revenues: Total revenues for the three months ended March 31, 1998 (the "1998 three months") increased $.4 million, from $23.0 million for the three months ended March 31, 1997 (the "1997 three months") to $23.4 million for the 1998 three months, while total revenues for the 1998 nine months increased $2.2 million, from $67.4 million for the 1997 nine months to $69.6 million for the 1998 nine months. The increase in total revenues of $.4 million for the 1998 three months was due primarily to an increase of approximately $.5 million (from $22.2 million for the 1997 three months to $22.7 million for the 1998 three months) in gaming machine route operations ("route operations") revenues. The increase in total revenues of $2.2 million for the 1998 nine months was the net result of an increase of $2.4 million (from $65.1 million for the 1997 nine months to $67.5 million for the 1998 nine months) in route operations revenues and a decrease of $.2 million (from $2.3 million for the 1997 nine months to $2.1 million for the 1998 nine months) in casino operations revenues. The increases in route operations revenues for the 1998 three months and 1998 nine months of $.5 million and $2.4 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 $.9 million and $4.8 million and existing locations generated additional revenues of $2.1 million and $5.0 million for the 1998 three months and the 1998 nine months, respectively. Terminated locations had generated revenues of $2.5 million and $7.4 million for the 1997 three months and the 1997 nine months, respectively. The loss of revenues generated at terminated locations was due primarily to the expiration of Jackpot's right to operate at the locations of Warehouse Markets, Inc., a significant chain store customer, on June 30, 1997. Despite a long-term relationship with such customer, Jackpot was not willing to agree with the terms sought for a contract extension, which management believed were uneconomic. The agreement involved the operation of approximately 272 gaming machines in 16 locations. In fiscal 1997, Jackpot generated approximately 6% of its total revenues and a significant amount of operating income from operations at such customer's locations. For additional information regarding Jackpot's operations, see Item 1 - Business - Gaming Machine Route Operations in the 1997 Form 10-K. Route operations revenues attributable to fixed payment leases and revenue sharing contracts for the three and nine months ended March 31, 1998 and 1997 are summarized below (dollars in thousands): Three Months Ended March 31, _________________________________________ 1998 1997 ___________________ ___________________ Percent Percent of route of route operations operations Amount revenues Amount revenues _______ __________ _______ __________ Route operations: Fixed payment leases $16,736 73.8% $15,074 67.8% Revenue sharing contracts 5,931 26.2 7,147 32.2 _______ _____ _______ _____ Totals $22,667 100.0% $22,221 100.0% ======= ===== ======= ===== Nine Months Ended March 31, _________________________________________ 1998 1997 ____________________ ___________________ Percent Percent of route of route operations operations Amount revenues Amount revenues _______ __________ _______ __________ Route operations: Fixed payment leases $50,119 74.2% $43,392 66.6% Revenue sharing contracts 17,415 25.8 21,762 33.4 _______ _____ _______ _____ Totals $67,534 100.0% $65,154 100.0% ======= ===== ======= ===== The decreases in route operations revenues attributable to revenue sharing contracts of $1.2 million (from $7.1 million for the 1997 three months to $5.9 million for the 1998 three months) and $4.3 million (from $21.7 million for the 1997 nine months to $17.4 million for the 1998 nine months) were principally due to the loss of the significant customer previously discussed. Costs and expenses: Route operations expenses for the 1998 three months and 1998 nine months increased $.7 million (from $17.6 million for the 1997 three months to $18.3 million for the 1998 three months) and $3.4 million (from $51.8 million for the 1997 nine months to $55.2 million for the 1998 nine months) and, as a percentage of route operations revenues, increased to 80.7% and 81.7% for the 1998 three months and 1998 nine months, respectively, from 79.2% and 79.4% for the 1997 three months and 1997 nine months, respectively. Such increases were principally attributable to an increase in location rent. With respect to location rent, which is the single largest route operations expense, Jackpot entered into agreements for long-term extensions with four of its largest retail chain store customers during 1997. Such agreements, two of which were not due to expire on June 30, 1997, became effective July 1, 1997. A very competitive pricing environment caused Jackpot to offer significant increases in location rent over the existing agreements. The increases in route operations expenses of $.7 million and $3.4 million resulted primarily from a combination of increases of $2.2 million and $5.7 million in location rent for locations of existing chain store customers, which were related to the four chain store renewals, increases of $.4 million and $2.0 million in location rent for new locations of existing chain store customers, net of decreases of $.9 million and $2.7 million in location rent for lost chain store customers and decreases of $1.0 million and $1.6 million in other route operations expenses, respectively. For a further description of the Company's lease and license agreements, see Item 1 - Business - Gaming Machine Route Operations and Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview in the 1997 Form 10-K. Amortization expense for the 1998 three months and 1998 nine months decreased $.1 million (from $.4 million for the 1997 three months to $.3 million for the 1998 three months) and $.4 million (from $1.3 million for the 1997 nine months to $.9 million for the 1998 nine months). The decrease in amortization expense for the respective 1998 periods was attributable to reductions in amortization expense related to certain lease acquisition costs. Depreciation expense for the 1998 three months and 1998 nine months increased $.1 million (from $.9 million for the 1997 three months to $1.0 million for the 1998 three months) and $.2 million (from $2.6 million for the 1997 nine months to $2.8 million for the 1998 nine months). The increase in depreciation expense for the respective 1998 periods was principally attributable to new gaming machines purchased during the 1998 nine months. General and administrative expense for the 1998 three months, compared to the 1997 three months, remained constant at $1.0 million, while general and administrative expense for the 1998 nine months decreased $.1 million, from $3.0 million for the 1997 nine months to $2.9 million for the 1998 nine months. Other income: Other income for the 1998 three months, compared to the 1997 three months, remained constant at $.4 million, while other income for the 1998 nine months increased approximately $.2 million (from $1.2 million for the 1997 nine months to $1.4 million for the 1998 nine months) primarily due to the increase in interest income earned from cash equivalents and to the receipt of approximately $.1 million for liquidated damages from the potential purchaser of Jackpot's remaining two casinos. Jackpot received such amount as a result of the potential purchaser's withdrawal of his gaming application with the Nevada Gaming Authorities. In connection with its strategy to exit its casino operations, Jackpot is evaluating its options and continues to market its two casinos for sale. However, unless Jackpot is able to enter into agreements for the sale of these properties, on terms acceptable to Jackpot, no assurance can be given that such disposals will occur. Other: The effective tax rate for the 1998 three months and 1998 nine months was 27%, which was lower than the 31% rate for the 1997 three months and 1997 nine months, primarily because of the increase in tax benefits from tax-exempt interest income. General: Operating income for the 1998 three months and 1998 nine months decreased $.2 million (from $2.4 million for the 1997 three months to $2.2 million for the 1998 three months) and $.8 million (from $6.7 million for the 1997 nine months to $5.9 million for the 1998 nine months). The decrease in operating income for the 1998 three months was due principally to a decrease in the route operations operating margin of $.3 million, from $4.6 million for the 1997 three months to $4.3 million for the 1998 three months, while the decrease in operating income for the 1998 nine months resulted primarily from a combination of a decrease in the route operations operating margin of $1.1 million, net of a decrease in amortization of $.4 million. The decrease in the route operations operating margin of $1.1 million (from $13.4 million for the 1997 nine months to $12.3 million for the 1998 nine months) was due principally to the increase in location rent expense for existing locations as previously described. While net income for the 1998 three months and 1998 nine months decreased slightly compared to the respective 1997 periods, and diluted earnings per share for the 1998 three months and 1998 nine months remained constant, the Company's results of operations for the remainder of fiscal 1998 will continue to be adversely affected, compared to the prior year periods, due to the intensely competitive market conditions prevailing for gaming machine route operators, the loss of the significant chain store customer described above and the above referenced increases in location rent. However, management believes that the following may lessen the adverse effects described above: (i) increased revenues at existing locations due to capital improvements or replacements of gaming machines, (ii) increased revenues at existing locations as a result of the maturing of several recently opened new chain store locations, and (iii) additional revenues from new locations scheduled to be opened by Jackpot's largest chain store customers. The Company experienced positive results primarily from (i), and to a lesser degree, from (ii) and (iii) during the 1998 three months and 1998 nine months. While management believes that these events will occur, they are, in part, based upon factors that are outside the Company's control. Accordingly, no assurance can be given that such benefits will occur, or occur at sufficient levels to lessen the adverse effects described above. Year 2000 issues: Jackpot is presently reviewing its computer hardware and software for potential "Year 2000" issues. The Year 2000 problem may occur as a result of the inability of computer hardware and/or software to appropriately recognize calendar dates beginning in the year 2000. Jackpot has appointed a senior officer with the responsibility of overseeing Jackpot's Year 2000 review. While management believes, based on its preliminary findings, that the Company will not experience significant adverse effects or incur material costs regarding "Year 2000" issues, no such assurance can be given until the review has been completed. 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, unfavorable changes in gaming regulations, 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 27.1 - Financial Data Schedule (EDGAR filing only). (b) Reports on Form 8-K - No Form 8-K was filed for the three months ended March 31, 1998. 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 11, 1998
EX-27 2
5 This schedule contains summary financial information extracted from Jackpot's Condensed Consolidated Balance Sheets - March 31, 1998 and June 30, 1997 and its Condensed Consolidated Statements of Income - three and nine months ended March 31, 1998 and 1997 and is qualified in its entirety by reference to such financial statements. 9-MOS JUN-30-1998 JUL-01-1997 MAR-31-1998 50,196 0 0 0 0 53,252 35,445 19,802 78,422 4,059 0 0 0 98 71,140 78,422 0 69,648 0 57,240 3,169 0 0 7,388 1,995 0 0 0 0 5,393 .60 .59
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