-----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, HxufJJOSL+oUWyojhZsE9S4j40QOX0BhH0uT/K6ZS799L6dw+7/x2a63B9WmOhSx 9IxdY22aayuVbE1wqWe6TQ== 0000351903-97-000014.txt : 19971114 0000351903-97-000014.hdr.sgml : 19971114 ACCESSION NUMBER: 0000351903-97-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971112 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: 97713597 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 September 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to ___________________ Comission 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 9,082,035 shares of the registrant's common stock outstanding as of November 7, 1997. JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES INDEX Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets - September 30, 1997 and June 30, 1997 Condensed Consolidated Statements of Income - Three Months Ended September 30, 1997 and 1996 Condensed Consolidated Statement of Stockholders' Equity - Three Months Ended September 30, 1997 Condensed Consolidated Statements of Cash Flows - Three Months Ended September 30, 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) September 30, June 30, ASSETS 1997 1997 ______ ____________ ________ Current assets: Cash and cash equivalents $ 49,712 $ 47,945 Prepaid expenses 1,384 1,438 Other current assets 1,899 1,728 ________ ________ Total current assets 52,995 51,111 ________ ________ Property and equipment, at cost: Land and buildings 1,535 1,535 Gaming equipment 29,072 28,202 Other equipment 4,651 4,595 Leasehold improvements 339 339 ________ ________ 35,597 34,671 Less accumulated depreciation (21,805) (21,582) ________ ________ 13,792 13,089 Lease acquisition costs and other intangible assets, net of accumulated amortization of $4,028 and $6,198 2,781 3,596 Goodwill, net of accumulated amortization of $2,588 and $2,547 4,033 4,074 Lease and other security deposits 3,044 2,959 Other non-current assets 380 438 ________ ________ Total assets $ 77,025 $ 75,267 ======== ========
See Notes to Condensed Consolidated Financial Statements. JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share data) (Concluded) September 30, June 30, LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1997 ____________________________________ ____________ ________ Current liabilities: Accounts payable $ 720 $ 375 Other current liabilities 4,379 4,407 _______ _______ Total current liabilities 5,099 4,782 Deferred rent 2,215 2,510 Deferred income tax 797 633 Other liabilities 61 61 _______ _______ Total liabilities 8,172 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; 9,823,993 shares issued 98 98 Additional paid-in capital 66,033 66,033 Retained earnings 10,825 9,253 Less 741,958 shares of common stock in treasury, at cost (8,103) (8,103) _______ _______ Total stockholders' equity 68,853 67,281 _______ _______ Total liabilities and stockholders' equity $77,025 $75,267 ======= =======
See Notes to Condensed Consolidated Financial Statements. JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (Dollars in thousands, except per share data) 1997 1996 _______ _______ Revenues: Route operations $21,918 $21,167 Casino operations 749 788 _______ _______ Totals 22,667 21,955 _______ _______ Costs and expenses: Route operations 18,291 16,977 Casino operations 727 753 Amortization 276 431 Depreciation 868 888 General and administrative 925 983 _______ _______ Totals 21,087 20,032 _______ _______ Operating income 1,580 1,923 _______ _______ Other income: Interest and other income 573 356 _______ _______ Totals 573 356 _______ _______ Income before income tax 2,153 2,279 _______ _______ Provision for Federal income tax: Current 417 706 Deferred 164 _______ _______ Totals 581 706 _______ _______ Net income $ 1,572 $ 1,573 ======= ======= Earnings per common share $ .17 $ .17 ======= ======= Cash dividends per share of common stock $ - $ .08 ======= =======
See Notes to Condensed Consolidated Financial Statements. JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY THREE MONTHS ENDED SEPTEMBER 30, 1997 (Dollars and shares in thousands) Treasury Common Stock Additional Stock Total _____________ Paid-in Retained ______________ Stockholders' Shares Amount Capital Earnings Shares Amount Equity ______ ______ __________ ________ ______ _______ _____________ Balance July 1, 1997 9,824 $98 $66,033 $ 9,253 (742) $(8,103) $67,281 Net income 1,572 1,572 _____ ___ _______ _______ ____ _______ _______ Balance September 30, 1997 9,824 $98 $66,033 $10,825 (742) $(8,103) $68,853 ===== === ======= ======= ==== ======= =======
See Notes to Condensed Consolidated Financial Statements. JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (Dollars in thousands) 1997 1996 _______ _______ Operating activities: Net income $ 1,572 $ 1,573 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,144 1,319 Deferred Federal income tax 164 Increase (decrease) from changes in: Prepaid expenses and other current assets (117) 159 Other non-current assets (105) 59 Accounts payable 345 (17) Other current liabilities (28) 253 Deferred rent 306 (139) _______ _______ Net cash provided by operating activities 3,281 3,207 _______ _______ Investing activities: Net proceeds from location operators 73 45 Proceeds from sales of subsidiary and property 4 1,270 Purchases of property and equipment (1,570) (693) Increase in lease acquisition costs and other intangible assets (21) (60) _______ _______ Net cash (used in) provided by investing activities (1,514) 562 _______ _______ Financing activities: Proceeds from issuance of common stock 184 Dividends paid (748) _______ _______ Net cash used in financing activities (564) _______ _______ Net increase in cash and cash equivalents 1,767 3,205 Cash and cash equivalents at beginning of period 47,945 39,024 _______ _______ Cash and cash equivalents at end of period $49,712 $42,229 ======= ======= Supplemental disclosures of cash flow data: Cash paid during the period for: Federal income tax $ 400 $ -
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 September 30, 1997 and the results of its operations and cash flows for the three months ended September 30, 1997 and 1996. The earnings for the three months ended September 30, 1997 and 1996 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 fiscal 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. 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. 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 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: Earnings per share for the three months ended September 30, 1997 and 1996 are computed by dividing net income by the weighted average number of common shares outstanding. Stock options have been excluded from the computations because they had no effect on earnings per share. 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. 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 had 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. All discovery has been completed and the parties have filed cross motions for summary judgment. The Court has not yet ruled upon such motions. 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. 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 three months ended September 30, 1997 (the "1997 three 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 September 30, 1997 was $49.7 million. Net cash provided by operating activities for the 1997 three months was $3.3 million. Net cash used in investing activities for the 1997 three months increased $2.1 million, from $.6 million provided by investing activities for the three months ended September 30, 1996 (the "1996 three months") to $1.5 million used in investing activities for the 1997 three months. The 1996 three 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 $.9 million, from $.7 million for the 1996 three months to $1.6 million for the 1997 three months. Primarily, as a result of the transactions described above, net cash used in investing activities increased by $2.1 million. Liquidity: At September 30, 1997, Jackpot had cash and cash equivalents of $49.7 million, an increase of $1.8 million from June 30, 1997. Jackpot's working capital increased to $47.9 million at September 30, 1997, 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 Jackpot's management to repurchase up to 500,000 shares of its common stock, from time to time, at prevailing market prices. Since such authorization, Jackpot has repurchased 283,771 shares of common stock at a cost of approximately $2.8 million. 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. All discovery has been completed and the parties have filed cross motions for summary judgment. The Court has not yet ruled upon such motions. 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 7 of Notes to Consolidated Financial Statements in the 1997 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, 1998. With respect to planned capital expenditures, management anticipates Jackpot will purchase approximately $6.9 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. 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. 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 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 1997 three months increased $.7 million, from $22.0 million for the 1996 three months to $22.7 million for the 1997 three months. The increase in total revenues was attributable to an increase of $.7 million (from $21.2 million for the 1996 three months to $21.9 million for the 1997 three months) in gaming machine route operations ("route operations") revenues. The increase in route operations revenues of $.7 million 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 $1.9 million, existing locations generated additional revenues of $1.2 million and terminated locations had generated revenues of $2.4 million for the 1996 three months. The loss of revenues generated at terminated locations was primarily due 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 1997 and 1996 three months are summarized below (dollars in thousands): 1997 1996 ___________________ __________________ Percent Percent of route of route operations operations Amount revenues Amount revenues _______ __________ _______ __________ Route operations: Fixed payment leases $16,444 75.0% $13,804 65.2% Revenue sharing contracts 5,474 25.0 7,363 34.8 _______ _____ _______ _____ Totals $21,918 100.0% $21,167 100.0% ======= ===== ======= =====
The decrease in route operations revenues attributable to revenue sharing contracts of $1.9 million (from $7.4 million for the 1996 three months to $5.5 million for the 1997 three months) was principally due to the loss of the significant customer previously discussed. Costs and expenses: Route operations expenses for the 1997 three months increased $1.3 million (from $17.0 million for the 1996 three months to $18.3 million for the 1997 three months) and, as a percentage of route operations revenues, increased to 83.5% for the 1997 three months from 80.2% for the 1996 three months. 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 increase in route operations expenses of $1.3 million primarily resulted from a combination of an increase of $1.7 million in location rent for locations of existing chain store customers, which was related to the four chain store renewals, an increase of $.7 million in location rent for new locations of existing chain store customers, net of a decrease of $.9 million in location rent for lost chain store customers and a decrease of $.2 million in location rent associated with other revenue sharing contracts. The total for all other route operations costs and expenses for the 1997 three months approximated the aggregate amount for the 1996 three months. 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 1997 three months decreased approximately $.1 million, from $.4 million for the 1996 three months to $.3 million for the 1997 three months. The decrease in amortization expense for the 1997 three months was attributable to reductions in amortization expense related to certain lease acquisition costs. Depreciation expense for the 1997 three months, compared to the 1996 three months, remained constant at $.9 million. General and administrative expense for the 1997 three months decreased approximately $.1 million, from $1.0 million for the 1996 three months to $.9 million for the 1997 three months. Other income: Other income for the 1997 three months increased approximately $.2 million (from $.4 million for the 1996 three months to $.6 million for the 1997 three 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. Other: The effective tax rate for the 1997 three months was 27%, which was lower than the 31% rate for the 1996 three months, primarily because of the increase in tax benefits from tax-exempt interest income. General: Operating income for the 1997 three months decreased $.3 million, from $1.9 million for the 1996 three months to $1.6 million for the 1997 three months. The decrease in operating income for the 1997 three months resulted primarily from a decrease in the route operations operating margin of $.6 million, net of an overall decrease in amortization, depreciation and general and administrative expenses of $.3 million. The decrease in the route operations operating margin of $.6 million (from $4.2 million for the 1996 three months to $3.6 million for the 1997 three months) was principally due to the increase in location rent expense for existing locations as previously described. While net income and earnings per share for the 1997 three months, compared to the 1996 three months, remained constant at $1.6 million and $.17, respectively, due to the factors described above, 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 as a result of the maturing of several recently opened new chain store locations, (ii) additional revenues from new locations scheduled to be opened by Jackpot's largest chain store customers, and (iii) increased revenues at existing locations due to capital improvements or replacements of gaming machines. The Company experienced positive results from (i) and (iii) during the 1997 three 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. 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 months ended September 30, 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 September 30, 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: November 12, 1997 EX-11 2 EXHIBIT 11.1 JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (Dollars and shares in thousands, except per share data) 1997 1996 ______ ______ Primary: Earnings: Net income $1,572 $1,573 ====== ====== Shares: Weighted average number of common shares outstanding (A) 9,082 9,355 ====== ====== Primary earnings per share $ .17 $ .17 ====== ====== Fully diluted (B): Earnings: Net income $1,572 $1,573 Add after-tax interest (C) 5 39 ______ ______ Net income, as adjusted $1,577 $1,612 ====== ====== Shares: Weighted average number of common shares outstanding 9,082 9,355 Common shares issuable upon exercise of stock options, 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 182 226 ______ ______ Weighted average number of common shares and common share equivalents outstanding 9,264 9,581 ====== ====== Fully diluted earnings per share $ .17 $ .17 ====== ======
___________________________________ (A) Common shares issuable upon exercise of stock options, net of common shares assumed to be repurchased from the proceeds at the average market price for the period have been excluded from the computations 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 an increase in interest income as a result of the assumed increase in investments in U. S. government securities from the application of the portion of the proceeds from the assumed exercise of stock options 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 - September 30, 1997 and June 30, 1997 and its Consolidated Statements of Income - three months ended September 30, 1997 and 1996 and is qualified in its entirety by reference to such financial statements. 3-MOS JUN-30-1998 JUL-01-1997 SEP-30-1997 49,712 0 0 0 0 52,995 35,597 21,805 77,025 5,099 0 0 0 98 68,755 77,025 0 22,667 0 19,018 998 0 0 2,153 581 0 0 0 0 1,572 .17 .17
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