UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to____________
COMMISSION FILE NUMBER 1-9728
JACKPOT ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Nevada 88-0169922
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
1110 Palms Airport Drive, Las Vegas, Nevada 89119
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (702) 263-5555
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock - Par value $.01 per share, New York Stock Exchange
which include certain preferred stock purchase rights
Securities registered pursuant to Section 12(g) of the Act:
Warrants to Purchase Common Stock
(Title of class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or anyamendment to this Form 10-K: _______
As of August 31, 1995, the aggregate market value of the voting stock
held by non-affiliates of the Registrant was approximately $90,000,000.
As of August 31, 1995, there were 9,301,647 shares of the Registrant's
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement relating to the 1995 Annual Meeting of
Stockholders are incorporated by reference into Part III of this Report.
PART I
Item 1. Business
General
Jackpot Enterprises, Inc. ("Jackpot" or the "Company") has
been actively engaged in the gaming industry for over 30 years.
The Company is one of the largest gaming machine route operators
in the State of Nevada, operating, as of June 30, 1995, 4,284
state-of-the-art video poker and other gaming machines in 452
locations. Jackpot is an established leader in the operation of
gaming machines in multiple retail locations ("gaming machine
route operations") in Nevada. In addition to its gaming machine
route operations, Jackpot also operated, as of June 30, 1995,
four casinos in Nevada through its casino operating subsidiaries
substantially involving the operation of an aggregate of 546
gaming machines.
As of June 30, 1995, Jackpot operated in both its gaming
machine route operations and its casino operations a total of
4,830 gaming machines located in 456 locations. As of June 30,
1995, approximately 95% of the gaming machines operated by
Jackpot were video poker and approximately 5% were reel-type and
other machines. Of the total gaming revenues generated in 1995,
91% were derived from Jackpot's gaming machine route operations
and 9% were derived from Jackpot's casino operations. Because of
the integrated nature of such operations, Jackpot is considered
to be engaged in one industry segment.
Jackpot's business is subject to seasonal fluctuations. The
gaming play for the gaming machine route operations is generally
greater in the second and fourth quarters of Jackpot's fiscal
year and the gaming play for Jackpot's casino operations is
generally greater in the first and fourth quarters.
Jackpot was incorporated under the laws of the State of
Nevada in June 1980 for the purpose of acquiring two gaming
machine route companies, Cardivan Company ("Cardivan") and Corral
United, Inc. ("CUI"), through an initial public offering in June
1981. In addition to its 100% ownership of Cardivan and CUI,
Jackpot owns either directly or through holding companies, the
following operating companies: 100% of Corral Coin, Inc.
("CCI"), Corral Country Coin, Inc. ("CCCI"), Jackpot Owl, Inc.
(the "Owl Club"), Debbie's Casino, Inc. ("Debbie's") and
Jackpot's Highway 93 Casino, Inc. (the "Pony Express Casino");
and 88.9% of Jackpot City, Inc. (the "Nugget"). Unless the
context indicates otherwise, references to "Jackpot" and the
"Company" include its direct and indirect subsidiaries.
Business Development Strategy
The Company's business strategy is to enhance its position
as a leader in the Nevada gaming machine route market and to
apply its gaming management expertise, experience in marketing to
middle market clientele, and extensive regulatory and government
experience to pursue expansion opportunities in existing and
emerging gaming markets for gaming machine route operations,
strategic gaming activities and other nongaming areas.
Specifically, the Company's business strategy includes the
following:
Enhance Nevada Route Operations. The Company intends to
enhance its position as a leader in the Nevada gaming machine
route business by continuing to provide high levels of service
and popular gaming products, cultivating its existing
relationships with major customers and expanding its gaming
machine route operations through the selective addition of new
locations. In addition, the Company believes its gaming machine
route operations, which target local Nevada residents, are well
positioned to benefit from the expected continued economic and
population growth in Nevada.
Pursue Gaming Machine Route and Casino Operations in
Established and Emerging Jurisdictions. Jackpot is pursuing
opportunities for growth in existing and emerging gaming markets
for gaming machine route and casino operations. Jackpot believes
that its experience as one of the largest and profitable
gaming machine route operators in Nevada will provide it with a
competitive advantage in securing gaming machine route and casino
opportunities in established and emerging gaming markets.
Pursue Other Strategic Gaming and Nongaming Opportunities.
Jackpot will consider pursuing joint ventures and strategic
alliances where it believes such arrangements are an effective
means of entering established and new gaming markets. In
addition, if nongaming opportunities are available which could
enhance earnings growth and possibly provide synergy with the
Company's existing operations, Jackpot will review the long-term
attractiveness of such projects.
Jackpot continues to review potential acquisition
opportunities in existing and emerging gaming markets to
determine their long-term attractiveness. Jackpot believes it is
well positioned to expand its operations as additional states and
local jurisdictions adopt legislation to allow the development of
gaming machine and casino entertainment. Although Jackpot is
actively pursuing potential gaming and nongaming opportunities,
there can be no assurance that additional gaming or nongaming
opportunities will be available on terms acceptable to Jackpot.
<PAGE>
Gaming Machine Route Operations
Gaming machine route operations involve the installation,
operation and service of gaming machines owned by Jackpot in
licensed, leased or subleased space in retail stores
(supermarkets, drug stores, merchandise stores and convenience
stores), bars and restaurants throughout Nevada. With respect to
retail stores, Jackpot generally licenses, leases or subleases
space in stores which are part of a chain of stores and installs
gaming machines and a change booth near the store's entrance,
where customer traffic is greatest. The number of gaming
machines per store is determined by licensing limitations,
available space and license, lease or sublease negotiations.
During the year ended June 30, 1995, approximately 75% of
Jackpot's gaming machine route revenues were generated by
southern Nevada operations and 25% by northern Nevada operations.
Management believes that Jackpot has a substantial market share
of gaming machine operations in general merchandise stores, drug
stores, and supermarket chains in Nevada, and that its customers
are primarily local Nevada residents.
As of June 30, 1995, Jackpot operated in its gaming machine
route business 4,284 gaming machines at 452 locations; 102 of the
locations contained 15 gaming machines, 44 of the locations
contained more than 15 machines and 306 of the locations
contained fewer than 15 machines. Change booths are operated at
retail store locations with generally 15 gaming machines or more
during all store business hours by employees of Jackpot who
provide coins and tokens to players of the gaming machines in
exchange for currency. On a regular basis, coins and tokens are
removed from the gaming machines and the coin and token supply of
the change booth is replenished.
Gaming machines are routinely serviced, repaired, and
maintained by mechanics employed by Jackpot. In the opinion of
management, Jackpot's gaming machines and associated equipment
are well-maintained, adequately insured, and in good working
condition.
Jackpot has a significant amount of its gaming machine route
operations at retail stores which are part of a group of
affiliated store chains. Gaming machine route operations from
two groups of affiliated store chains in fiscal 1995 and fiscal
1994 and one such group in fiscal 1993 each accounted for more
than 10% of Jackpot's total revenues in such years. The largest
five store chains (Albertson's, Inc., American Stores Company,
Kmart Corporation, Thrifty PayLess, Inc. and Warehouse Markets,
Inc.) accounted for approximately 50% of Jackpot's total revenues
in fiscal 1995. Leases covering the five groups of affiliated
store chains have a wide range of terms and maturities, with
expiration dates extending from 1997 to 1999. The loss of any of
these leases could have a material adverse effect on the
Company's future results of operations.
Although Jackpot's revenues and number of gaming machines in
operation have been affected by the loss of locations and gaming
machines in the ordinary course of business, revenues in
Jackpot's gaming machine route operations have increased as a
result of the growth in the Nevada population, obtaining
additional licenses, leases or subleases for new locations,
acquiring other gaming machine route businesses, and installing
additional machines at existing locations.
The following table sets forth certain historical data showing
the changes to the number of machines and locations in Jackpot's
gaming machine route operations through June 30, 1995:
As of June 30,
<TABLE>
1995 1994 1993 1992 1991
_____ _____ _____ _____ _____
<S> <C> <C> <C> <C> <C>
Number of machines on location 4,284 4,072 4,488 2,776 2,789
Number of locations 452 434 486 294 276
</TABLE>
Jackpot's agreements for its locations generally are in the
form of written license, lease, sublease or revenue sharing
contracts and generally give Jackpot the exclusive right to
install gaming machines at such locations. License, lease and
sublease agreements accounting for approximately 62% of total
gaming machine route revenues in fiscal 1995 required payments of
fixed monthly fees based upon the amount of space used and/or the
number of gaming machines placed at the location, all of which
were generally subject to fixed periodic increases. The
remainder provided for the payment to the location owner of a
rental fee or a revenue-sharing arrangement based upon a
percentage of the gross revenues generated by Jackpot's gaming
machines at such location. A location owner is not permitted to
receive gaming machine revenues (lease or otherwise) based upon a
percentage of revenues unless such owner is licensed by the
Nevada Gaming Commission. Licenses, leases and subleases have a
wide range of terms and maturities, with expiration dates
extending from 1995 to 2001. License, lease and sublease
agreements representing approximately 6% of the total gaming
machine route revenues have terms expiring prior to July 1, 1996.
Given the competitive nature of the gaming machine route
industry, license, lease and sublease extensions at existing
locations have historically resulted in increased monthly fees,
and Jackpot anticipates that, as licenses, leases and subleases
expire in the future, retail store owners will seek to impose
higher fees and/or more costly revenue-sharing arrangements upon
Jackpot. These contracts have also generally required fixed
periodic increases in monthly fees during the term of the
contract. With respect to the accounting treatment of fixed
periodic increases in monthly fees, Jackpot is required to
average annual lease costs over the term of the contract. As a
result of such accounting treatment, annual lease costs generally
increase significantly in the first year of an extended contract
for the respective locations covered by the contract and,
thereafter, remain constant for existing locations during the
term of the contract.
Most of Jackpot's licenses, leases and subleases with major
retail chains cover a number of specified stores within a
geographic area and usually provide that Jackpot has the option
to install gaming machines at any new stores of the retail chain
opened in such area. Accordingly, in most cases, termination of
an individual license, lease or sublease with one chain would
result in Jackpot losing its rights to operate a number of
machines at a number of locations and, therefore, could have a
material adverse effect upon Jackpot's results of operations.
All of the licenses, leases and subleases require Jackpot to pay
all installation, maintenance and insurance expenses and all
taxes in connection with Jackpot's operations at the location.
Jackpot's license, lease and sublease agreements generally
provide that in the event that Jackpot fails to pay the required
rental or license fees under such license, lease or sublease or
defaults in the performance of any of its other obligations
thereunder, the store operator can terminate the license, lease
or sublease, usually after notice and a cure period of between 10
and 30 days. These agreements generally also provide that if the
store operator terminates its business at a location, the
license, lease or sublease is automatically terminated as to that
location. Jackpot believes that it is not in default under any
of its present licenses, leases or subleases. See Note 9 of
Notes to Consolidated Financial Statements.
Prior to negotiating licenses, leases and subleases and
installing machines, Jackpot performs a study of market
potential, customer base, and comparative route locations in
order to determine the appropriate type and denominations of
gaming machines to be installed in each new location. This
evaluation is ongoing at all locations and machine mix changes
are made accordingly to maximize the operating performance of
each location.
Jackpot has historically been able to renew or substantially
replace revenues from expiring agreements with revenues generated
by renewal or replacement agreements. Increased competitive
pressures in the gaming machine route business have, however,
increased the amount of fixed payments and the portion of
revenues of gaming machine route operations payable to the
lessors and licensors. Jackpot believes its success is primarily
due to its management style and relationships with its host
locations which have, in several instances, spanned for over
three decades.
Jackpot intends to continue to expand its Nevada gaming
machine route operations primarily as a result of the expected
population growth in Nevada and resultant increase in retail
establishments. Jackpot believes it is the largest operator of
gaming machines in chain stores in Nevada and believes this niche
market will benefit through the expected growth in and outside
Nevada. Jackpot also intends to continue to secure market share
in its market niche through the introduction of ancillary
products and services, such as "Megapoker" and other products
management believes will enhance its overall business.
Casino Operations
Nugget
As of June 30, 1995, the Nugget, which was acquired on
November 1, 1989, operated 181 gaming machines at a 10,000 square
foot leased location in downtown Reno, Nevada. The Nugget has
food and beverage operations incident to the conduct of gaming
activities. The location is under two concurrent noncancellable
space leases each for a period of twenty-one years beginning
November 1, 1989, including a five-year renewal period at the
option of Jackpot. Jackpot believes the Nugget has developed a
distinctive niche for attracting local residents and tourists who
enjoy friendly service in an informal, congenial atmosphere.
Owl Club
On July 1, 1990, Jackpot acquired the Owl Club, which, as of
June 30, 1995, operated 89 gaming machines and three live table
games in Battle Mountain, Nevada. The Owl Club also has a
beverage operation incident to the conduct of gaming activities,
a restaurant operation and an eighteen room motel. The Owl Club
owns the land and buildings used in its casino and motel
operations. The Owl Club primarily serves local residents and
markets with its food and informal, congenial atmosphere.
Debbie's Casino
On June 28, 1993, Jackpot began the casino operation of
Debbie Reynolds' Hollywood Hotel and Casino in Las Vegas, Nevada
under a four-year management agreement. As of June 30, 1995,
Jackpot operated 182 gaming machines and two live table games in
approximately 5,000 square feet of casino space. The ancillary
facilities, which are operated by third parties, include food and
beverage and showroom operations.
Pony Express Casino
On January 26, 1995, Jackpot began operations of the Pony
Express Casino, which is located in the Holiday Inn Express Motel
in Jackpot, Nevada, under a five-year space lease agreement. As
of June 30, 1995, Jackpot operated 94 gaming machines in
approximately 2,600 square feet of casino space. The Pony
Express Casino attracts hotel guests, local residents and
tourists, primarily from the Idaho market.
Other
In September 1993, Jackpot entered into an agreement with
President Riverboat Casinos-Mississippi, Inc. ("President")
whereby Jackpot agreed to provide the necessary improvements to a
site leased by Jackpot in the Mhoon Landing section of southern
Tunica County, Mississippi and President agreed to provide to
Jackpot for a dockside casino project at the site (the "Tunica
Facility") the use of a riverboat, fully converted to a gaming
configuration and a floating restaurant. Pursuant to the
agreement, the Tunica Facility was jointly managed by President
and Jackpot.
On June 15, 1994, President and Jackpot elected to close the
facility because of continued losses from operations which were
due to low revenues as a result of the opening by other gaming
companies of additional casinos located nearer to the Memphis,
Tennessee metropolitan area than the Tunica Facility and periodic
inclement weather conditions. All operations closed permanently
on July 8, 1994.
Since July 1994, Jackpot has paid its share of liabilities
and closing costs, which were fully accrued as of June 30, 1994,
sold all remaining real and personal property and terminated both
its agreement with President and the underlying real property
lease. Jackpot has no remaining material obligations or plans
for any future operations at the Tunica site.
Pursuant to Jackpot's continuing effort to enhance returns
to stockholders, the Company analyzes the current and potential
profitability of its casino operations to determine appropriate
long-term business strategy. In order to achieve better use of
management time and investment resources and enhance returns on
capital employed, Jackpot closed all casino operations in
Deadwood, South Dakota effective June 30, 1995. Jackpot holds
all of its properties in South Dakota for sale. In addition,
Jackpot terminated the operating agreement and ceased operations
at Water Street Casino, Inc. dba the Post Office Casino in
February 1995 due to poor operating results.
For additional information concerning Jackpot's operations,
see Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Stockholder Rights Plan
In July 1994, Jackpot implemented a Stockholder Rights Plan
(the "Rights Plan") designed to protect its stockholders in the
event of takeover action that would deny them the full value of
their investment. Terms of the Rights Plan provide for a
dividend distribution of one Right for each share of common stock
to holders of record at the close of business on July 15, 1994.
The Rights will become exercisable only in the event, with
certain exceptions, an acquiring party accumulates 15 percent or
more of the Company's voting stock, or if a party announces an
offer to acquire 30 percent or more of the Company's voting
stock. The Rights will expire on July 15, 2004. Each Right will
entitle the holder to buy one one-hundredth of a share of Series
A Junior Preferred Stock at a price of $30. In addition, upon
the occurrence of certain events, holders of the Rights will be
entitled to purchase either the Company's Preferred Stock or
shares in an "acquiring entity" at half of market value. Jackpot
will generally be entitled to redeem the Rights at $.01 per Right
at any time until the tenth day following the acquisition of a 15
percent position in its voting stock by an acquiring party.
Suppliers
Jackpot purchases a variety of models and styles of gaming
machines primarily from one manufacturer, which is recognized as
the leading manufacturer of gaming machines. Jackpot is not
dependent upon this manufacturer, although it did purchase
approximately 86% of its gaming machines from such manufacturer
in fiscal 1995. Each gaming machine accepts only one
denomination of coin and, with minor exceptions, each location
will have a variety of machines requiring different denominations
of coins. Gaming machines operated by Jackpot are multiple coin
play. Multiple coin play allows a player to wager several coins
of the same denomination on each play. Jackpot continues to test
machines from various gaming machine manufacturers to determine
which games and models are best suited for its customers.
Employees
As of June 30, 1995, Jackpot employed approximately 975
persons, the substantial portion of whom are non-management
personnel. None of Jackpot's employees are covered by a
collective bargaining agreement and Jackpot believes that it has
satisfactory employee relations.
Competition
Gaming machines and gaming of all types are available in
Nevada in casinos and hotel casinos, as well as in locations
similar to those of Jackpot, all of which compete directly or
indirectly with Jackpot.
Gaming Machine Route Competition:
Jackpot has been and is subject to substantial direct
competition for the operation of gaming machines in approved
locations from numerous small gaming machine route operators and
some large operators, located principally in Las Vegas, Reno and
their surrounding areas. Management believes at least one of
these competitors (Alliance Gaming Corporation) has more gaming
machines or locations than Jackpot. In addition, a limited
number of these competitors manufacture gaming machines. The
principal methods of competition for gaming machine locations are
the lease, sublease, license or revenue sharing terms, the
service provided by the route operator and the experience,
reputation and financial strength of the route operator. In
recent years Jackpot has faced intense competition in its gaming
machine route operations, and Jackpot anticipates that, as its
licenses, leases and subleases expire, it may face strong
competition from other route operators who may attempt to capture
locations by offering more favorable terms to retail store
owners. As a result, Jackpot anticipates that, as licenses,
leases and subleases expire, Jackpot will be required to pay
higher fixed fees and/or offer more favorable revenue-sharing
arrangements to retail store owners in order to retain locations.
Casino Competition:
The operation of casinos is a highly competitive business.
The Company's potential competitors in casino operations may be
significantly larger than the Company and have substantially
greater resources and significantly more experience than the
Company. Many of such competitors include large casinos which
offer more variety and amenities and may be perceived to have
more favorable locations than the Company. The Company believes
casino operations compete on the basis of any one or more of a
number of factors such as quality and location of the facility,
mix and number of gaming tables and machines, the nature and
quality of the amenities and customer services offered, food,
beverage and hotel prices, the implementation and success of
marketing programs and reputation. The Company's casino
operations focus on the local market rather than the tourist
market. Accordingly, the Company believes that the principal
competition for the Company's operations comes from smaller
casinos, many of which are larger than the Company's casinos.
However, large casinos also attract gaming customers from the
local market. Competition for experienced management and trained
personnel is also intense in these businesses.
Other:
Jackpot's potential competitors in commercial gaming and
nongaming businesses into which Jackpot may expand may be
significantly larger than Jackpot and have substantially greater
resources and significantly more experience than Jackpot. The
principal methods of competition in the new and diverse
businesses into which Jackpot may expand are different than those
experienced in Jackpot's current casino and gaming machine route
business. Jackpot believes that the participants in other gaming
businesses compete on the basis of any one or more of a number of
factors such as location, physical attractiveness of facilities,
mix and number of gaming tables and machines, customer service,
food, beverage and hotel prices, advertising, marketing, and
reputation. Competition for experienced management and trained
personnel is also intense in these businesses.
Regulation and Licensing Requirements
Nevada
The ownership and operation of casino gaming facilities and
gaming routes in Nevada are subject to: (i) the Nevada Gaming
Control Act and the regulations promulgated thereunder
(collectively, "Nevada Act"); and (ii) various local regulations.
The Company's gaming machine operations are subject to the
licensing and regulatory control of the Nevada Gaming Commission
("Nevada Commission"), the Nevada State Gaming Control Board
("Nevada Board"), and local regulatory authorities. The Nevada
Commission, the Nevada Board and the local regulatory authorities
are collectively referred to as the "Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the
Nevada Gaming Authorities are based upon declarations of public
policy which are concerned with, among other things: (i) the
prevention of unsavory or unsuitable persons from having a direct
or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible
accounting practice and procedures; (iii) the maintenance of
effective controls over the financial practices of licensees,
including the establishment of minimum procedures for internal
fiscal affairs and the safeguarding of assets and revenues,
providing reliable record keeping and requiring the filing of
periodic reports with the Nevada Gaming Authorities; (iv) the
prevention of cheating and fraudulent practices; and (v) to
provide a source of state and local revenues through taxation and
licensing fees. Change in such laws, regulations and procedures
could have an adverse effect on the Company's gaming operations.
Corporations that operate casinos and gaming machine routes
in Nevada are required to be licensed by the Nevada Gaming
Authorities. A gaming license requires the periodic payment of
fees and taxes and is not transferable. The Company is
registered by the Nevada Commission as a publicly traded
corporation ("Registered Corporation") and as such, it is
required periodically to submit detailed financial and operating
reports to the Nevada Commission and furnish any other
information which the Nevada Commission may require. The Company
has been found suitable by the Nevada Commission to own the stock
of Cardivan, CUI, CCI, and CCCI (the "Route Subsidiaries") and
Jackpot Gaming, Inc. Jackpot Gaming, Inc. is registered as a
holding corporation and is approved by the Nevada Gaming
Authorities to own the stock of the Nugget, Debbie's, the Owl
Club and the Pony Express Casino (the "Casino Subsidiaries"). No
person may become a stockholder of, or receive any percentage of
profits from, the Route Subsidiaries, Jackpot Gaming, Inc., or
the Casino Subsidiaries without first obtaining licenses and
approvals from the Nevada Gaming Authorities. The Company, the
Route Subsidiaries, Jackpot Gaming, Inc., and the Casino
Subsidiaries have obtained from the Nevada Gaming Authorities the
various registrations, approvals, permits and licenses required
in order to engage in gaming activities in Nevada.
The Nevada Gaming Authorities may investigate any individual
who has a material relationship to, or material involvement with,
the Company or any of its subsidiaries in order to determine
whether such individual is suitable or should be licensed as a
business associate of a gaming licensee. Officers, directors and
certain key employees of the Route Subsidiaries and the Casino
Subsidiaries must file applications with the Nevada Gaming
Authorities and may be required to be licensed or be found
suitable by the Nevada Gaming Authorities. Officers, directors
and key employees of the Company who are actively and directly
involved in gaming activities of the Company or its subsidiaries
may be required to be licensed or found suitable by the Nevada
Gaming Authorities. The Nevada Gaming Authorities may deny an
application for licensing for any cause which they deem
reasonable. A finding of suitability is comparable to licensing,
and both require submission of detailed personal and financial
information followed by a thorough investigation. The applicant
for licensing or a finding of suitability must pay all the costs
of the investigation. Changes in licensed positions must be
reported to the Nevada Gaming Authorities and in addition to
their authority to deny an application for a finding of
suitability or licensure, the Nevada Gaming Authorities have
jurisdiction to disapprove a change in a corporate position.
If the Nevada Gaming Authorities were to find an officer,
director or key employee unsuitable for licensing or unsuitable
to continue having a relationship with the Company or any of its
subsidiaries, the companies involved would have to sever all
relationships with such person. In addition, the Nevada
Commission may require the Company and its subsidiaries to
terminate the employment of any person who refuses to file
appropriate applications. Determinations of suitability or of
questions pertaining to licensing are not subject to judicial
review in Nevada.
The Company, Jackpot Gaming, Inc., the Route Subsidiaries
and the Casino Subsidiaries are required to submit detailed
financial and operating reports to the Nevada Commission.
Substantially all material loans, leases, sales of securities and
similar financing transactions by the Company and its
subsidiaries must be reported to, or approved by, the Nevada
Commission.
If it were determined that the Nevada Act was violated by
the Company or any of its subsidiaries, the gaming licenses and
approvals they hold could be limited, conditioned, suspended or
revoked, subject to compliance with certain statutory and
regulatory procedures. In addition, the Company, the subsidiary
involved, and the persons involved could be subject to
substantial fines for each separate violation of the Nevada Act
at the discretion of the Nevada Commission. Further, a
supervisor could be appointed by the Nevada Commission to operate
the Company's gaming properties and, under certain circumstances,
earnings generated during the supervisor's appointment (except
for the reasonable rental value of the Company's gaming
properties) could be forfeited to the State of Nevada.
Limitation, conditioning or suspension of any gaming license or
the appointment of a supervisor could (and revocation of any
gaming license would) materially adversely affect the Company's
gaming operations.
Any beneficial holder of the Company's voting securities,
regardless of the number of shares owned, may be required to file
an application, be investigated, and have his suitability as a
beneficial holder of the Company's voting securities determined
if the Nevada Commission has reason to believe that such
ownership would otherwise be inconsistent with the declared
policies of the State of Nevada. The applicant must pay all
costs of investigation incurred by the Nevada Gaming Authorities
in conducting any such investigation.
The Nevada Act requires any person who acquires more than 5%
of the Company's voting securities to report the acquisition to
the Nevada Commission. The Nevada Act requires that beneficial
owners of more than 10% of the Company's voting securities apply
to the Nevada Commission for a finding of suitability within
thirty days after the Chairman of the Nevada Board mails the
written notice requiring such filing. Under certain
circumstances, an "institutional investor," as defined in the
Nevada Act, which acquires more than 10%, but not more than 15%,
of the Company's voting securities may apply to the Nevada
Commission for a waiver of such finding of suitability if such
institutional investor holds the voting securities for investment
purposes only. An institutional investor shall not be deemed to
hold voting securities for investment purposes unless the voting
securities were acquired and are held in the ordinary course of
business as an institutional investor and not for the purpose of
causing, directly or indirectly, the election of a majority of
the members of the board of directors of the Company, any change
in the Company's corporate charter, bylaws, management, policies
or operations of the Company, or any of its gaming affiliates, or
any other action which the Nevada Commission finds to be
inconsistent with holding the Company's voting securities for
investment purposes only. Activities which are not deemed to be
inconsistent with holding voting securities for investment
purposes only include: (i) voting on all matters voted on by
stockholders; (ii) making financial and other inquiries of
management of the type normally made by securities analysts for
informational purposes and not to cause a change in its
management, policies or operations; and (iii) such other
activities as the Nevada Commission may determine to be
consistent with such investment intent. If the beneficial holder
of voting securities who must be found suitable is a corporation,
partnership or trust, it must submit detailed business and
financial information including a list of beneficial owners. The
applicant is required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of
suitability or a license within thirty days after being ordered
to do so by the Nevada Commission or the Chairman of the Nevada
Board, may be found unsuitable. The same restrictions apply to a
record owner if the record owner, after requests, fails to
identify the beneficial owner. Any stockholder found unsuitable
and who holds, directly or indirectly, any beneficial ownership
of the common stock of a Registered Corporation beyond such
period of time as may be prescribed by the Nevada Commission may
be guilty of a criminal offense. The Company is subject to
disciplinary action if, after it receives notice that a person is
unsuitable to be a stockholder or to have any other relationship
with the Company or any of its subsidiaries, the Company (i) pays
that person any dividend or interest upon voting securities of
the Company, (ii) allows that person to exercise, directly or
indirectly, any voting right conferred through securities held by
that person, (iii) pays remuneration in any form to that person
for services rendered or otherwise, or (iv) fails to pursue all
lawful efforts to require such unsuitable person to relinquish
his voting securities for cash at fair market value.
The Nevada Commission may, in its discretion, require the
holder of any debt security of a Registered Corporation to file
applications, be investigated and be found suitable to own the
debt security of a Registered Corporation. If the Nevada
Commission determines that a person is unsuitable to own such
security, then pursuant to the Nevada Act, the Registered
Corporation can be sanctioned, including the loss of its
approvals, if without the prior approval of the Nevada
Commission, it: (i) pays to the unsuitable person any dividend,
interest, or any distribution whatsoever; (ii) recognizes any
voting right by such unsuitable person in connection with such
securities; (iii) pays the unsuitable person remuneration in any
form; or (iv) makes any payment to the unsuitable person by way
of principal, redemption, conversion, exchange, liquidation, or
similar transaction.
The Company is required to maintain a current stock ledger
in Nevada which may be examined by the Nevada Gaming Authorities
at any time. If any securities are held in trust by an agent or
by a nominee, the record holder may be required to disclose the
identity of the beneficial owner to the Nevada Gaming
Authorities. A failure to make such disclosure may be grounds
for finding the record holder unsuitable. The Company is also
required to render maximum assistance in determining the identity
of the beneficial owner. The Nevada Commission has required that
the Company's stock certificates bear a legend indicating that
the securities are subject to the Nevada Act.
The Company may not make a public offering of its securities
without the prior approval of the Nevada Commission if the
securities or the proceeds therefrom are intended to be used to
construct, acquire or finance gaming facilities in Nevada, or to
retire or extend obligations incurred for such purposes. Such
approval, if given, does not constitute a finding, recommendation
or approval by the Nevada Commission or the Nevada Board as to
the accuracy or adequacy of the prospectus or the investment
merits of the securities. Any representation to the contrary is
unlawful.
Changes in control of the Company through merger,
consolidation, stock or asset acquisitions, management or
consulting agreements, or any act or conduct by a person whereby
he obtains control, may not occur without the prior approval of
the Nevada Commission. Entities seeking to acquire control of a
Registered Corporation must satisfy the Nevada Board and the
Nevada Commission in a variety of stringent standards prior to
assuming control of such Registered Corporation. The Nevada
Commission may also require controlling stockholders, officers,
directors and other persons having a material relationship or
involvement with the entity proposing to acquire control, to be
investigated and licensed as part of the approval process
relating to the transaction.
The Nevada legislature has declared that some corporate
acquisitions opposed by management, repurchases of voting
securities and corporate defense tactics affecting Nevada gaming
licensees, and Registered Corporations that are affiliated with
those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a
regulatory scheme to ameliorate the potentially adverse effects
of these business practices upon Nevada's gaming industry and to
further Nevada's policy to: (i) assure the financial stability
of corporate gaming operators and their affiliates; (ii) preserve
the beneficial aspects of conducting business in the corporate
form; and (iii) promote a neutral environmental for the orderly
governance of corporate affairs. Approvals are, in certain
circumstances, required from the Nevada Commission before the
Company can make exceptional repurchases of voting securities
above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada
Act also requires prior approval of a plan of recapitalization
proposed by the Company's Board of Directors in response to a
tender offer made directly to the Registered Corporation's
stockholders for the purposes of acquiring control of the
Registered Corporation.
License fees and taxes, computed in various ways depending
upon the type of gaming or activity involved, are payable to the
State of Nevada and to the local jurisdictions. Depending upon
the particular fee or tax involved, these fees and taxes are
payable either monthly, quarterly or annually and are based upon
any of: (i) a percentage of the gross revenues received; (ii)
the number of gaming devices operated; or (iii) the number of
table games operated. A casino entertainment tax is also paid by
casino operations where entertainment is furnished in connection
with the selling of food or refreshments. Nevada licensees that
hold a license as an operator of a slot route, or a
manufacturer's or distributor's license, also pay certain fees
and taxes to the State of Nevada.
Any person who is licensed, required to be licensed,
registered, required to be registered, or is under common control
with such persons (collectively, "Licensees"), and who proposes
to become involved in a gaming venture outside of Nevada is
required to deposit with the Nevada Board, and thereafter
maintain, a revolving fund in the amount of $10,000 to pay the
expenses of investigation of the Nevada Board of their
participation in such foreign gaming. The revolving fund is
subject to increase or decrease in the discretion of the Nevada
Commission. Thereafter, Licensees are required to comply with
certain reporting requirements imposed by the Nevada Act.
Licensees are also subject to disciplinary action by the Nevada
Commission if they knowingly violate any laws of the foreign
jurisdiction pertaining to the foreign gaming operation, fail to
conduct the foreign gaming operation in accordance with the
standards of honesty and integrity required of Nevada gaming
operations, engage in activities that are harmful to the State of
Nevada or its ability to collect gaming taxes and fees, or employ
a person in the foreign operation who has been denied a license
or finding of suitability in Nevada on the ground of personal
unsuitability.
The sale of alcoholic beverages at the Company's casinos is
subject to licensing, control and regulation by the applicable
local authorities. All licenses are revocable and are not
transferable. The agencies involved have full power to limit,
condition, suspend or revoke any such license, and any such
disciplinary action could (and revocation would) have a material
adverse effect upon the operations of the Company's casinos.
Federal Regulation
The Federal Gambling Devices Act of 1962 (the "Federal Act")
makes it unlawful, in general, for a person to manufacture,
deliver, or receive gaming machines, gaming machine type devices,
and components thereof across interstate lines or to operate
gaming machines unless that person has first registered with the
Attorney General of the United States. Jackpot's subsidiaries
have so registered and must renew their registration annually.
In addition, various record keeping and equipment identification
requirements are imposed by the Federal Act. Violation of the
Federal Act may result in seizure and forfeiture of equipment, as
well as other penalties.
Other Jurisdictions
Other jurisdictions also require various licenses, permits,
and approvals in connection with the ownership and operation of
gaming facilities. The operation of gaming devices and lottery
devices is subject to extensive licensing requirements and
regulatory compliance.
If Jackpot proceeds with expansion into any other state or
foreign jurisdiction, it will also be necessary for the
appropriate officers, employees, corporate subsidiaries and other
persons or entities to apply for and obtain all necessary gaming
and distributing licenses.
As in Nevada, state agencies and the local authorities
having jurisdiction over such activities have full power and
discretion to limit, condition, suspend and revoke such licenses
or approvals and any disciplinary action against Jackpot's
affiliates in such jurisdictions could (and revocation would)
have a material adverse effect on the operations of Jackpot in
such states or local jurisdictions.
Other
Jackpot maintains rigorous internal accounting controls in
accordance with the regulations of the Nevada Commission.
Jackpot carries insurance of such types and in such amounts as
management determines to be prudent from time to time.
<PAGE>
Item 2. Properties
Jackpot's corporate headquarters are located in Las Vegas,
Nevada with approximately 34,000 square feet of office, warehouse
and shop space under a lease which expires in 2006, with certain
options for renewal. Jackpot believes its properties are
adequate and suitable for its purposes. The following table sets
forth the location, use, size, and percentage utilization of
Jackpot's properties:
<TABLE>
<S> <C> <C> <C>
Location Use Approximate Percentage
Size Utilization
OWNED PROPERTIES:
Battle Mountain, Nevada Casino and motel
operations 10,000 sq. ft. 100%
Deadwood, South Dakota Land and buildings
all held for sale 9,000 sq. ft.
on 1.5 acres
of land N/A
LEASED PROPERTIES:
Las Vegas, Nevada Executive offices,
warehouse and shop 34,000 sq. ft. 90%
Reno, Nevada Offices and shop 10,000 sq. ft. 100%
Throughout Nevada Gaming machine
operations 60 sq. ft. average
per location 100%
Reno, Nevada Casino operations 10,000 sq. ft. 100%
Las Vegas, Nevada Casino operations 5,000 sq. ft. 100%
Jackpot, Nevada Casino operations 2,600 sq. ft. 100%
</TABLE>
Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Executive Officers of the Registrant
During the year, Jackpot underwent certain management
changes. In September 1994, Don R. Kornstein was appointed
President, Chief Executive Officer and a director of Jackpot. On
April 28, 1995, Jeffrey L. Gilbert, Executive Vice President and
Chief Operating Officer and Frederick Sandvick, Executive Vice
President and Chief Financial Officer resigned their positions
with Jackpot.
The executive officers of Jackpot are appointed by the Board
of Directors for an unspecified term and can be terminated at the
Board's discretion; however, Mr. Kornstein has an employment
agreement with Jackpot. The employment agreement for Mr.
Kornstein became effective on September 8, 1994 and expires on
September 30, 1997. Such agreement will automatically be
extended for additional one-year periods on each October 1
commencing October 1, 1995 unless notice is given by Jackpot or
Mr. Kornstein. The current executive officers of Jackpot (none
of whom has a family relationship with one another), their ages
and positions are as follows:
Year Became An
Name Age Position Executive Officer
Don R. Kornstein 43 President, Chief
Executive Officer
and Director 1994
George Congdon 46 Senior Vice President -
Operations 1995
Bob Torkar 44 Senior Vice President -
Finance, Treasurer and
Chief Accounting Officer 1991
Don R. Kornstein was appointed President, Chief Executive
Officer and a director of Jackpot on September 8, 1994. Prior to
his appointment with Jackpot, Mr. Kornstein was a Senior Managing
Director of Bear, Stearns & Co. Inc., a leading worldwide
investment banking firm where he had been employed since 1977.
Mr. Kornstein was in such firm's Investment Banking Department
and was head of that firm's gaming industry group.
George Congdon was appointed Senior Vice President -
Operations of Jackpot on May 11, 1995. From October 1990 to May
1995 Mr. Congdon held various management positions with certain
of Jackpot's subsidiaries including Vice President of Route
Operations and Senior Vice President of Operations. Prior to
October 1990, Mr. Congdon was employed for over sixteen years in
various operating positions by Bally Manufacturing, Inc. and
Bally Distributing, Inc., gaming machine manufacturers and
distributors.
Bob Torkar was appointed Vice President - Finance, Treasurer
and Chief Accounting Officer of Jackpot on July 1, 1991 and
Senior Vice President on October 15, 1993. From February 1991 to
June 1991, Mr. Torkar was a financial consultant to Jackpot.
Prior to the consulting assignment with Jackpot, Mr. Torkar was
Vice President and Chief Financial Officer with Furnishings 2000,
Inc., a publicly traded retail furnishings company in San Diego,
California, having spent seven years (1983-1990) with such
corporation.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Jackpot's common stock, par value $.01 per share (the
"Common Stock"), is listed on the New York Stock Exchange (NYSE)
with the trading symbol "J". The following table sets forth the
range of high and low prices for shares of the Common Stock for
the fiscal quarters indicated, as furnished by the NYSE, and the
per share cash dividends paid during those fiscal quarters. If
applicable, per share amounts have been adjusted to give
retroactive effect to the 10% stock dividend declared July 1,
1993.
<TABLE>
JACKPOT COMMON STOCK
_______________________________________________________________________
Dividends
High Low Paid
_______________________________________________________________________
<S> <C> <C> <C>
Fiscal 1994
First Quarter $22.39 $15.00 $.073
Second Quarter 16.50 13.63 .080
Third Quarter 14.50 11.00 .080
Fourth Quarter 12.00 7.38 .080
_______________________________________________________________________
Fiscal 1995
First Quarter $10.50 $ 7.88 $.080
Second Quarter 9.75 7.00 .080
Third Quarter 10.38 7.75 .080
Fourth Quarter 11.88 8.25 .080
_______________________________________________________________________
</TABLE>
As of September 8, 1995 there were approximately 2,700
holders of record of Common Stock. The number of holders of
record of Jackpot's Common Stock on September 8, 1995 was
computed by a count of record holders.
A policy of quarterly cash dividends was adopted by
Jackpot's Board of Directors in July 1987. However, there is no
assurance that quarterly cash dividends, if any, will continue to
be paid in the future since such cash dividends are dependent
upon earnings, the financial condition of Jackpot and other
factors. On July 30, 1993, Jackpot paid a quarterly cash
dividend of $.073 per share and a 10% stock dividend to its
stockholders of record on July 16, 1993. For the subsequent
three quarters in fiscal 1994, Jackpot paid a quarterly cash
dividend of $.08 per share. In fiscal 1995, Jackpot paid four
quarterly cash dividends of $.08 per share to its stockholders of
record.
On July 21, 1992, warrants to purchase Common Stock (the
"Warrants") began trading in the National Association of
Securities Dealers (NASDAQ) system and currently trade under the
symbol JKPTW. Each Warrant represents the right to buy 1.1
shares of Common Stock at an exercise price of $15.68 per share,
as adjusted for the 10% stock dividend declared on July 1, 1993.
The exercise price is subject to certain anti-dilution provisions
protecting the holder of the Warrant. These Warrants became
exercisable on September 14, 1992, the effective date of a
registration statement filed for the underlying Common Stock, and
expire, if unexercised, on January 31, 1996. Jackpot may redeem
the Warrants at a price of $1.82 per Warrant, as adjusted for the
10% Common Stock dividend declared July 1, 1993, because the
Common Stock has traded at a predetermined trigger price (120% of
the exercise price).
Item 6. Selected Financial Data
The following information has been derived from Jackpot's consolidated financial
statements:
<TABLE>
Years Ended June 30,
___________________________________________
1995 1994 1993 1992 1991
_______ _______ _______ _______ _______
<S> <C> <C> <C> <C> <C>
(Dollars in thousands, except per share data)
OPERATING DATA:
Total revenues $96,853 $98,335 $83,271 $62,733 $54,723
Operating income (1) $ 8,968 $ 9,409 $11,251 $ 6,810 $ 4,405
Income (loss) before
extraordinary gain $ 6,616 $(4,584) $ 6,506 $ 2,844 $ 1,295
Net income (loss) (2) $ 6,616 $(4,584) $ 6,506 $ 3,048 $ 1,661
Earnings (loss) per common and
common equivalent share (3)(4):
Income (loss) before
extraordinary gain $ .72 $ (.50) $ .80 $ .46 $ .21
Net income (loss) $ .72 $ (.50) $ .80 $ .49 $ .27
Earnings (loss) per common share -
assuming full dilution
(3)(5):
Income (loss) before
extraordinary gain $ .72 $ (.50) $ .78 $ .46 $ .21
Net income (loss) $ .72 $ (.50) $ .78 $ .49 $ .27
Dividends declared per
share (3) $ .32 $ .31 $ .38 $ .27 $ .26
Average primary common equivalent
shares (3) 9,235 9,211 8,532 6,400 6,090
_____________________________________________________________________________
OTHER DATA:
EBITDA (6) $18,125 $18,896 $19,338 $13,248 $10,445
Capital expenditures (7) $ 4,044 $13,452 $ 3,187 $ 1,983 $ 7,737
Amortization $ 2,880 $ 2,916 $ 2,326 $ 2,133 $ 1,931
Depreciation $ 5,349 $ 5,813 $ 4,922 $ 3,560 $ 2,861
____________________________________________________________________________
BALANCE SHEET DATA (at end of period):
Working capital (8) $31,640 $22,022 $28,614 $18,106 $16,570
Total assets $71,959 $73,459 $76,752 $63,009 $62,663
Long-term debt, net of
current portion $ 271 $ 1,403 $ 2,584 $ 573 $ 935
8.75% convertible
subordinated debentures $ - $ - $ - $29,921 $31,421
Stockholders' equity $60,216 $56,266 $63,361 $23,051 $21,124
</TABLE>
(1) Operating income in 1994 includes a pretax cost of $1.3 million
(an after tax cost of $850,000) in connection with the severance
agreement with Jackpot's former chief executive officer. See Note
9 of Notes to Consolidated Financial Statements.
(2) Net income (loss) includes: in 1994, a pretax loss of $16.9
million ($11.0 million after tax, or $1.20 per share) for Jackpot's
share of the closing costs, write-down of certain assets and operating
loss in a dockside riverboat operation in Tunica, Mississippi; in 1992
and in 1991, an extraordinary gain ($204,000 or $.03 per share and
$366,000 or $.06 per share, respectively) from repurchases of the
8.75% convertible subordinated debentures; and, in 1991, a pretax
write-down of $606,000 ($400,000 after tax, or $.07 per share) of
certain investments. See Note 4 of Notes to Consolidated Financial
Statements.
(3) Earnings per share calculations have been retroactively adjusted
in 1993, 1992 and 1991 for a 10% stock dividend declared July 1,
1993 and 5% stock dividends declared July 1, 1992 and July 2, 1991.
(4) Earnings per share calculations in 1993, 1992 and 1991 have been
based on weighted average shares outstanding adjusted for the number
of common share equivalents attributable to stock options and
Warrants. See Note 1 of Notes to Consolidated Financial Statements.
(5) Earnings per share calculations assuming full dilution in 1993
include the assumed conversion of the 8.75% convertible subordinated
debentures. The average common and common equivalent shares
outstanding assuming full dilution was 10,034,000 shares in 1993.
(6) EBITDA represents earnings before interest expense, income taxes,
depreciation, amortization and other non-cash items. EBITDA is
presented to provide additional insight into the Company's ability
to fund operations, make planned capital expenditures and meet its
financial obligations. EBITDA is not intended to represent earnings,
cash flow, or any other measure of performance in accordance with
generally accepted accounting principles.
(7) Capital expenditures in 1994 includes purchases of $9.0 million of
property in connection with the Tunica Facility.
(8) Working capital at June 30, 1992 and 1991 includes $5.9 million
and $9.4 million, respectively, of cash equivalents and short-term
investments reserved for gaming acquisitions.
<PAGE>
Item 7. 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 fiscal years ended June 30,
1995, 1994 and 1993 (referred to herein as "1995," "1994" and "1993,"
respectively), consisted of the cash flow from operating activities and
its available cash, cash equivalents and short-term investments which,
at the beginning of 1993 approximated $18.0 million and at the end of
1995 approximated $32.9 million.
Net cash provided by operating activities in 1995 was approximately
$18.1 million. Net cash used in investing activities in 1995 was
approximately $4.3 million which included cash used of approximately
$6.0 million and cash received of approximately $1.7 million. The $6.0
million of cash used included payments of approximately $4.0 million
primarily for purchases of property and equipment in connection with
Jackpot's Nevada operations, and approximately $1.5 million used for
advances to the dockside casino facility in Tunica County, Mississippi
(the "Tunica Facility"), which closed permanently on July 8, 1994. Such
advances to the Tunica Facility were used for payment toward Jackpot's
share of unpaid liabilities and estimated closing costs, which were
fully accrued as of June 30, 1994. The $1.7 million of cash received
from investing activities included aggregate proceeds from sales of
short-term investments and sales of certain assets.
Net cash used in financing activities in 1995 was approximately $4.4
million which consisted primarily of the repayment of approximately $1.4
million of long-term debt and the payment of approximately $3.0 million
of dividends.
As a result of the combination of net cash provided by operating
activities of approximately $18.1 million less net cash used in
investing and financing activities of approximately $4.3 million and
$4.4 million, respectively, cash and cash equivalents in 1995 increased
approximately $9.4 million.
Net cash provided by operating activities in 1994 was approximately
$18.4 million. Net cash used in investing activities in 1994 was
approximately $9.7 million which included cash received of approximately
$12.3 million and cash used of approximately $22.0 million. The $12.3
million of cash received consisted primarily of proceeds from sales of
short-term investments. The $22.0 million of cash used included
payments of approximately $4.9 million primarily in connection with new
lease agreements, payments of approximately $4.5 million for the
purchase of property and equipment in connection with Jackpot's Nevada
operations and expenditures and advances of $12.4 million in connection
with the development and operation of the Tunica Facility.
Net cash used in financing activities in 1994 was approximately $4.1
million which resulted from the payment of approximately $1.3 million of
long-term debt, the payment of approximately $2.9 million of dividends
and the payment of approximately $.6 million for other financing
activities, net of approximately $.3 million of proceeds from long-term
debt and $.4 million of proceeds from the issuance of common stock upon
the exercise of stock options and warrants.
As a result of the combination of net cash provided by operating
activities of approximately $18.4 million less net cash used in
investing and financing activities of approximately $9.7 million and
$4.1 million, respectively, cash and cash equivalents in 1994 increased
approximately $4.6 million.
Net cash provided by operating activities in 1993 was approximately
$17.7 million. Net cash used in investing activities in 1993 of
approximately $8.3 million included cash used of approximately $2.3
million for the acquisition of a gaming machine route business, $2.2
million for the purchase of equipment, $.2 million for location lease
rights and $3.2 million for the net purchases of short-term investments.
Net cash provided by financing activities in 1993 of approximately
$.9 million resulted from the receipt of approximately $4.8 million of
cash proceeds from the issuance of common stock and the payment of
approximately $2.9 million of dividends and approximately $1.0 million
for long-term debt.
As a result of the combination of net cash provided by operating and
financing activities of approximately $17.7 million and $.9 million,
respectively, less net cash used in investing activities of $8.3
million, cash and cash equivalents in 1993 increased approximately $10.3
million.
Liquidity:
As described above, during 1995, Jackpot purchased approximately
$4.0 million of property and equipment. Approximately $3.4 million of
the $4.0 million was associated with equipment purchased for locations.
Management anticipates that Jackpot will purchase approximately $5.6
million of property and equipment, exclusive of business acquisitions,
if any, for the fiscal year ended June 30, 1996 ("1996") to be used in
existing and currently planned new locations.
At June 30, 1995, Jackpot had cash and cash equivalents of
approximately $32.9 million, an increase of approximately $9.4 million,
or 40%, from the beginning of 1995. Jackpot's working capital and
current ratio were approximately $31.6 million and 6.6 to 1,
respectively, at June 30, 1995, which increased from $22.0 million and
3.0 to 1, respectively, at June 30, 1994 primarily as a result of the
activities described above.
On May 24, 1995, Jackpot notified 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 the
same agreements. Jackpot, based upon advice of 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. For further information concerning this matter, see Note 9 of
Notes to Consolidated Financial Statements.
Management believes Jackpot's working capital and cash generated
from operations will be sufficient to enable Jackpot to meet its planned
capital expenditures, meet its debt service requirements on its existing
debt, pay quarterly cash dividends pursuant to Jackpot's current
dividend policy and meet its other ongoing cash requirements as they
become due in 1996.
Jackpot continues to selectively explore expansion opportunities,
both in and outside Nevada, and various potential acquisitions, both
gaming and nongaming related. Management believes working capital and
cash generated from operations will be sufficient to enable Jackpot to
continue its expansion; however, Jackpot may seek additional debt or
equity financing to facilitate such acquisitions and expansion.
Results of Operations
Jackpot has developed a strategy to utilize its position as a leader
in the Nevada gaming machine route market and to apply its gaming
management and regulatory experience to pursue gaming machine route
operations and strategic gaming activities in both established and
emerging gaming jurisdictions. Jackpot intends to enhance its gaming
machine route operations in Nevada by continuing to provide superior
service and innovative gaming products and aggressively cultivating its
existing relationships with major customers. Jackpot continues to
selectively explore expansion opportunities, both in and outside Nevada,
and various potential acquisitions, both gaming and nongaming related.
Since 1991, Jackpot's gaming machine route operations have grown
substantially. During this period, Jackpot has expanded its gaming
machine route operations through (i) internal growth resulting from
increased play at its existing gaming machine route locations and (ii)
increased number of leased locations due, in part, to several strategic
acquisitions of gaming machine route operations from other operators.
During this same period, Jackpot expanded its business to include casino
operations, with current operations at four casinos in Nevada.
Operations in Jackpot's largest retail chain store customers are
subject to various leases. One lease, which accounted for approximately
9% of Jackpot's total revenues in 1994 expired on June 30, 1994. Such
expiration had a significant effect as total revenues in 1995 decreased
approximately $1.5 million over 1994. Operations in five retail chain
store customers accounted for approximately 50% of Jackpot's total
revenues in 1995. Of these five customers, Jackpot's two largest
customers each accounted for more than 10% of Jackpot's total revenues
in 1995. Leases with these five customers have a wide range of terms
and maturities, with expiration dates extending from 1997 to 1999. The
loss of the Company's right to operate at any of these five locations
could have a material adverse effect on the Company's future results of
operations. There is no assurance that the Company will be able to
renew or extend its existing leases and, if renewed, there can be no
assurance that the Company will not have to pay higher fees or offer
more favorable terms to retain such leases. Further, there is no
assurance that revenues will continue to grow at existing locations
despite the continued increase in the Nevada population and expansion of
the Nevada economy.
The Company has historically been able to renew or substantially
replace revenues from expiring gaming machine route agreements with
revenues generated by renewal or replacement agreements. However,
increased competitive pressures in the gaming machine route business
have increased the Company's lease payments as a percentage of the
revenues generated from gaming machine route operations, decreasing the
Company's operating margins from its gaming machine route operations.
As a result, the Company's future operating margins with respect to such
contracts may be lower than for earlier periods. In order to optimize
its operating performance, the Company is engaged in a continual
evaluation of leases, some of which, from time to time, it may dispose
of or not renew.
Lease extensions at existing locations have historically resulted in
increased monthly fees. These contracts have also generally required
fixed periodic increases in monthly fees during the term of the
contract. With respect to the accounting treatment of fixed periodic
increases in monthly fees associated with these contracts, the Company
is required to average annual lease costs over the term of the contract.
As a result of such accounting treatment, annual lease costs generally
increase significantly in the first year of an extended contract for the
respective locations covered by the contract and, thereafter, remain
constant for existing locations during the term of the contract.
<PAGE>
The table below presents the changes in comparative financial data from
1993 to 1995 (dollars in thousands).
<TABLE>
Years Ended June 30,
__________________________________________________________________
1995 1994 1993
________________________ ________________________ ______________
Percent Percent Percent Percent Percent
of Increase of Increase of
Amount Revenues(Decrease) Amount Revenues (Decrease)Amount Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Route
operations $87,892 90.7% (2.5)% $ 90,168 91.7% 15.9% $77,767 93.4%
Casino
operations 8,961 9.3 9.7 8,167 8.3 48.4 5,504 6.6
_______ _____ _____ ________ _____ _______ _______ _____
Totals 96,853 100.0 (1.5) 98,335 100.0 18.1 83,271 100.0
_______ _____ _____ ________ _____ _______ _______ _____
Costs and
expenses:
Route
operations 66,342 68.5 1.0 65,656 66.8 22.0 53,835 64.7
Casino
operations 7,904 8.1 15.5 6,842 7.0 38.6 4,938 5.9
Amortization 2,880 3.0 (1.2) 2,916 3.0 25.4 2,326 2.8
Depreciation 5,349 5.5 (8.0) 5,813 5.9 18.1 4,922 5.9
General and
admini-
strative 5,410 5.6 (29.7) 7,699 7.8 28.3 5,999 7.2
_______ _____ _____ _______ _____ _____ _______ _____
Totals 87,885 90.7 (1.2) 88,926 90.5 23.5 72,020 86.5
_______ _____ _____ _______ _____ _____ _______ _____
Operating
Income 8,968 9.3 (4.7) 9,409 9.5 (16.4) 11,251 13.5
Other income
(expense),
net 907 .9 105.5 (16,461) (16.7) 1,235.0 (1,233) (1.5)
_______ _____ _____ ________ _____ _______ _______ _____
Income (loss)
before income
tax 9,875 10.2 240.0 (7,052) (7.2) (170.4) 10,018 12.0
Provision
(credit) for
income tax 3,259 3.4 232.0 (2,468) (2.5) (170.3) 3,512 4.2
_______ _____ _____ _______ _____ _______ _______ _____
Net Income
(loss) $ 6,616 6.8% 244.3% $(4,584) (4.7)% (170.5)% $ 6,506 7.8%
======== ===== ===== ======= ===== ======= ======= =====
</TABLE>
Revenues generated from gaming machine route operations are
attributable to fixed payment leases and revenue sharing contracts.
The amount of revenues attributable to fixed payment leases and
revenue sharing contracts in 1995, 1994 and 1993 are summarized below
(dollars in thousands):
<TABLE>
1995 1994 1993
_________________ __________________ ____________________
Percent Percent Percent
of route of route of route
operations operations operations
Amount revenues Amount revenues Amount revenues
______ _________ _______ __________ ______ __________
<S> <C> <C> <C> <C> <C> <C>
Route operations:
Fixed payment
leases $54,386 61.9% $59,424 65.9% $50,514 65.0%
Revenue
sharing
contracts 33,506 38.1 30,744 34.1 27,253 35.0
_______ _____ _______ _____ _______ _____
$87,892 100.0% $90,168 100.0% $77,767 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
<PAGE>
1995 compared to 1994
General:
The 1995 net income of $6.6 million, the highest in Jackpot's
history, represented an increase of approximately $11.2 million from
the net loss of $4.6 million in 1994. The net loss in 1994 included
an after-tax loss of approximately $11.0 million for Jackpot's share
of closing costs, write-down of certain assets and the operating loss
of the Tunica Facility. The 1995 net income does not have any losses
from the Tunica Facility because, as previously described, Jackpot
permanently closed the Tunica Facility on July 8, 1994 and had accrued
as of June 30, 1994 an estimate for all anticipated closing costs
associated with the closure. A portion of the increase in net income
in 1995 was also due to an improvement in operating results of gaming
machine route operations despite the expiration of the Company's right
to operate at certain locations of a major retail chain store customer
(the "Customer") on June 30, 1994. Jackpot generated approximately 9%
of its total revenues and a significantly greater percentage of its
total operating income from operations at locations of the Customer in
1994.
Revenues:
Total revenues in 1995 decreased approximately $1.5 million, from
$98.4 million in 1994 to $96.9 million in 1995. The decrease in total
revenues of $1.5 million was the net result of a decrease of $2.3
million (from $90.2 million in 1994 to $87.9 million in 1995) in
gaming machine route operations revenues and an increase of $.8
million (from $8.2 million in 1994 to $9.0 million in 1995) in casino
operations revenues.
The decrease in gaming machine route operations revenues of $2.3
million resulted from a combination of additional revenues generated
from existing and new locations, net of lost revenues from terminated
locations. In 1995, new locations generated approximately $7.7
million of revenues, while existing locations generated approximately
$4.2 million in additional revenues. Terminated locations had
generated $14.2 million in revenues in 1994. The loss of the revenues
generated at the terminated locations was primarily due to the
expiration of the Company's right to operate at certain locations of
the Customer on June 30, 1994.
As described previously, a significant amount of Jackpot's gaming
machine route revenues is derived from five retail chain store
customers pursuant to license, lease or sublease agreements. As of
June 30, 1995, such agreements involved the operation of 1,615
machines in 100 locations.
The increase in casino operations revenues in 1995 of
approximately $.8 million was primarily due to the commencement in
January 1995 of operations of Jackpot's Highway 93 Casino, Inc., dba
the Pony Express Casino (the "Pony Express Casino").
Cost and expenses:
Route operations expenses in 1995 increased approximately $.7
million (from $65.6 million in 1994 to $66.3 million in 1995) and, as
a percentage of route operations revenues, route operations expenses
increased to 75.5% in 1995 from 72.8% in 1994. The increase of $.7
million in 1995 over 1994 was attributable to an increase of $.4
million in location rent expense, an increase of $.5 million in
payroll costs, net of an overall decrease of $.2 million in other
expenses. Route operations expenses increased as a percentage of
route operations revenues primarily because of the loss of the
Customer, with which route operations expenses were lower as a
percentage of route operations revenues than Jackpot s prior year
overall percentage. Although Jackpot was able to replace a
substantial portion of the revenues lost with revenues generated by
new and existing locations, generally the costs associated with
revenues generated at new locations have been greater as a percentage
of revenues than have the costs associated with the lost revenues.
With respect to location rent, which is the single largest route
operation expense, no contract with a material effect on operating
results expires in 1996.
Casino operations expenses in 1995 increased approximately $1.1
million (from $6.8 million in 1994 to $7.9 million in 1995) and, as a
percentage of casino operations revenues, casino operations expenses
increased to 88.2% in 1995 from 83.8% in 1994 due to the lower than
expected revenues of Water Street Casino, Inc., dba the Post Office
Casino (the "Post Office Casino"), which commenced operations in July
1994. As a result of the continuation of the poor operating
performance of the Post Office Casino, which generated an operating
loss of approximately $.4 million in 1995 including a one-time charge
of approximately $.2 million in connection with the reduction in the
size of gaming operations at the location from 175 gaming machines to
70 gaming machines and the change in operations from a casino
location to a gaming machine route location, Jackpot terminated the
operating agreement and sublease with the lessor and ceased operations
at the Post Office Casino in February 1995.
Amortization expense in 1995 remained constant at approximately
$2.9 million compared to 1994. Depreciation expense in 1995 decreased
approximately $.5 million (from $5.8 million in 1994 to $5.3 million
in 1995). The decrease in depreciation expense was primarily due to
the reduction in depreciation expense of certain assets associated
with the Tunica Facility.
General and administrative expenses in 1995 decreased
approximately $2.3 million (from $7.7 million in 1994 to $5.4 million
in 1995) primarily as a result of decreases of $1.1 million in
severance costs, $.5 million in connection with the cancellation of a
proposed public offering in 1994, $.4 million of unsuccessful
development costs and $.3 million in other general and administrative
expenses.
Operating income decreased approximately $.4 million in 1995
(from $9.4 million in 1994 to $9.0 million in 1995). The decrease in
operating income of $.4 million was due primarily to the combination
of the previously described effect on gaming machine route operations
of the expiration of the Company's right to operate at certain
locations of the Customer on June 30, 1994, net of the effect of the
decrease of certain nonrecurring general and administrative expenses
described above.
With respect to other non-operating income and expense, 1994
included a pretax loss of approximately $16.9 million for Jackpot's
share of closing costs, write-down of certain assets and the operating
loss of the Tunica Facility.
The effective tax rate was approximately 33% in 1995, which was
lower than the statutory federal tax rate and the 35% rate in 1994
primarily because of the tax benefits from tax-exempt interest income.
Earnings per common share in 1995 was $.72 compared to the loss per
common share in 1994 of $.50 per share.
1994 compared to 1993
General:
The 1994 net loss of $4.6 million represented a decrease of
approximately $11.1 million from net income of $6.5 million in 1993.
As explained below, the decrease of $11.1 million was primarily due to
the write down of assets and costs and expenses associated with the
closing of the Tunica Facility as well as Jackpot's share of the
operating losses from the Tunica Facility. Total revenues in 1994
increased approximately $15.1 million or 18.1% over 1993, from
approximately $83.2 million to $98.3 million, the highest total in
Jackpot's history. The $15.1 million increase was the net result of
an increase of approximately $12.4 million (from $77.8 million in 1993
to $90.2 million in 1994) of revenues from gaming machine route
operations and an increase of approximately $2.7 million (from $5.5
million in 1993 to $8.2 million in 1994) from casino operations.
Operating income in 1994 decreased approximately $1.8 million,
from $11.2 million in 1993 to $9.4 million in 1994. The decrease in
operating income in 1994 was due to expenses of approximately $1.3
million in connection with the severance arrangements for Jackpot's
former Chief Executive Officer, who resigned on May 3, 1994 and costs
of approximately $.5 million in connection with the cancellation of a
proposed public offering.
Revenues:
Revenues generated from gaming machine route operations increased
by $12.4 million in 1994 primarily as a result of machine play at new
locations which generated approximately $11.7 million. The increase
of revenues of approximately $11.7 million from new locations in 1994
was primarily from additional locations acquired in connection with
new long-term lease agreements which took effect on July 1, 1993 and
to the full year effect on revenues generated by the gaming machine
route operations acquired in August 1992 from International Game
Technology and its subsidiary, Electronic Data Technology
(collectively "IGT"). Approximately $6.5 million in revenues in 1994,
based on the amount of revenues generated in the comparable 1993
period, were lost from terminated locations. The remaining increase
in revenues of approximately $7.2 million in 1994 was primarily the
result of increased play from existing machines in operation.
As described previously, a significant amount of Jackpot's gaming
machine route revenues is derived from retail chain store customers
pursuant to license, lease or sublease agreements. As of June 30,
1994, such agreements involved the operation of 1,750 machines in 111
locations. The license with the Customer, which expired on June 30,
1994, was put to bid on a competitive basis during 1994 and Jackpot
was not willing to meet the terms of a competitive bid, which
management believed were uneconomic. Jackpot was advised by the
Customer that since Jackpot was not willing to meet the terms of the
competitive bid, the license agreement with Jackpot would not be
renewed on July 1, 1994. Had Jackpot met the terms of the competitive
bid, management believes Jackpot would have had losses from the
operations at locations of the Customer. The expired agreement in
volved the operation of approximately 240 gaming machines in 14 locations.
Jackpot generated approximately 9% of its total revenues and a
significantly greater percentage of its total operating income from
operations at locations of the Customer in 1994. The loss of this license
will have a material adverse effect on the Company's results of
operations for periods beginning July 1, 1994.
Casino operations revenues in 1994 increased approximately $2.7
million over 1993 primarily due to the commencement of operations at
the Debbie Reynolds' Hollywood Hotel & Casino ("Debbie's") in July
1993. An additional casino operation which is managed by Jackpot with
approximately 175 gaming machines commenced operations in July 1994.
Costs and expenses:
Route operations expenses in 1994 increased approximately $11.8
million (from $53.8 million in 1993 to $65.6 million in 1994) and, as
a percentage of route operations revenues, increased to 72.8% in 1994
from 69.2% in 1993. The increase of $11.8 million over 1993 was
attributable to an increase of $9.4 million in location rent expense,
an increase of $1.1 million in payroll costs, an increase of $.6
million in gaming taxes and an increase of $.7 million in other
expenses.
The increase in location rent expense resulted from a combination
of additional location rent incurred for newly acquired locations,
including the locations from the acquisition of the gaming machine
route operations of IGT in August 1992, net of reduced location rent
from terminated locations, and increases in location rent at existing
locations that arose in connection with revenue-sharing arrangements
and changes in the terms of fixed rent agreements. Included in
location rent is the amount of the location owners' share of the
gaming revenues generated at the respective locations pursuant to
revenue-sharing arrangements. This portion is generally higher in
amount as a percentage of revenue earned at the location than rent
paid at fixed rent locations primarily because Jackpot's other costs
and expenses (primarily payroll) at revenue-sharing locations are
expected to be lower than at fixed rent locations and the risk of low
revenue performance is shared.
With respect to fixed rent agreements, in 1992 and 1993, Jackpot
extended certain license agreements for existing locations which
require Jackpot to increase monthly fees in fixed annual intervals
over the term of the related agreement with the first year of the
extended term beginning on July 1, 1993. As a result of the
accounting requirement to average annual lease costs over the term of
the related leases, Jackpot recognized significantly increased rent
expense for such locations in 1994. Of the total increase in rent
expense in 1994, approximately 34% was attributable to the additional
rent incurred as a result of extensions to the aforementioned license
agreements. However, also as a result of the accounting requirement,
the rent expense for such locations will remain constant over the
remaining term of the respective contracts and, as such, rent expense
for such existing locations in 1995 will not be further increased.
The increase in payroll costs in 1994 was primarily due to annual
payroll increases effective July 1993 and additional operational personnel
required for a full year in connection with the acquisition of
the route operations of IGT.
Casino operations expenses in 1994 decreased, as a percentage of
casino operations revenues to 83.8% from 89.7% in 1993, primarily due
to the operating results of Debbie's. Jackpot has a management
contract to operate certain casino activities at Debbie's.
Amortization expense in 1994 increased by approximately $.6
million (from $2.3 million in 1993 to $2.9 million in 1994). The
increase in amortization expense in 1994 was primarily attributable to
certain costs incurred in connection with the previously mentioned new
license agreements which became effective July 1, 1993. Such costs
are amortized over the term of the respective license agreement.
Depreciation expense in 1994 increased by approximately $.9
million (from $4.9 million in 1993 to $5.8 million in 1994). The
increase in depreciation expense in 1994 was primarily attributable to
the costs associated with the acquisition of gaming machines and
related equipment for new route and casino locations operated during
1994.
General and administrative expenses in 1994 increased by
approximately $1.7 million (from $6.0 million in 1993 to $7.7 million
in 1994) primarily as a result of increases of $2.2 million due to the
$1.3 million of severance costs, the $.5 million of offering costs and
$.4 million of unsuccessful development costs and a decrease of $.9
million due to reduced legal costs in connection with legal actions
settled in 1993.
Other Income and Expense:
Interest expense in 1994 decreased by approximately $1.8 million
(from $2.1 million in 1993 to $.3 million in 1994) primarily as a
result of the reduction in interest expense from the conversion and
redemption of $29.9 million of Jackpot's 8.75% convertible
subordinated debentures which were outstanding in 1993.
As previously described, Jackpot, under a co-management
arrangement with President, commenced operations of the Tunica
Facility in December 1993. Jackpot entered into the co-management
arrangement in order to accelerate its entry into the Tunica,
Mississippi market and reduce its initial capital outlay from what
would have been required, which was estimated to be in excess of $35
million, to open a facility on its own. Although Jackpot was able to
accelerate its entry and minimize its initial capital outlay, the
results of operations in 1994 from the Tunica Facility were adversely
affected by lower than anticipated revenues. Management believes that
revenues were adversely affected by inclement winter weather
conditions, the opening of other casinos in November 1993, February
1994 and May 1994 which are located nearer to the Memphis, Tennessee
metropolitan area than the Tunica Facility, and the simultaneous
opening of a casino adjacent to the Tunica Facility. The inclement
winter weather included high water conditions on the Mississippi
River, which forced the temporary closing of the Tunica Facility from
April 19, 1994 to May 2, 1994. As a result of the lower than
anticipated revenues and the continued opening of new casinos located
nearer to Memphis than the Tunica Facility, the Tunica Facility was
permanently closed on July 8, 1994. Pursuant to the terms of the co-
management arrangement with President, Jackpot's share of the
operating loss from the Tunica Facility in 1994 was approximately $3.7
million. As a result of the permanent closure of the Tunica Facility,
Jackpot recognized a charge to expense of approximately $13.2 million
in the fourth quarter of 1994 which includes the write-down to
estimated recoverable value of $11.3 million to the remaining carrying
value of its assets associated with the Tunica Facility and the
provision of $1.9 million for closing costs.
Other:
The effective tax rate in 1994 was approximately 35%, which
approximated the rate in 1993 and the loss per common share in 1994
was $.50 per share compared to earnings per share in 1993 of $.80 per
share ($.78 per share assuming full dilution).
Impact of Inflation
Inflation has not had a significant effect on Jackpot's
operations during the three fiscal years ended June 30, 1995.
Item 8. Financial Statements and Supplementary Data
The Financial Statements and Supplementary Data required by this
Item 8 are set forth as indicated in Item 14(a)(1).
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Item 13. Certain Relationships and Related Transactions
The information required by items 10, 11, 12 and 13 are
incorporated by reference from the 1995 Proxy Statement to be
filed with the Securities and Exchange Commission within 120 days of
the end of the fiscal year covered by this report.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) and (2) Consolidated Financial Statements and Schedules
For a list of the consolidated financial statements and
consolidated financial statement schedules filed as a
part of this annual report on Form 10-K, see "Index to
Financial Statements, Supplementary Data and Financial
Statement Schedules" on page F-1.
(a)(3) The exhibits filed and incorporated by reference are listed
in the index of Exhibits required by Item 601 of Regulation
S-K at Item (c) below.
(b) Reports on Form 8-K
During the last quarter of the fiscal year ended June 30,
1995, Jackpot filed no reports on Form 8-K.
(c) Exhibits
3(i) Articles of Incorporation of the Registrant, as amended (C)
3(ii) By-laws of the Registrant, as amended (C)
3(iii) Form of Amendment to Articles of Incorporation of
Registrant (O)
4.1 Form of Indenture dated as of May 1, 1989, between
Registrant and Bankers Trust Company, as Trustee, including
form of Debenture (A)
4.2 Form of Amended and Restated Warrant agreement between the
Registrant and Continental Stock Transfer & Trust Company,
including form of Warrant (L)
4.3 Stockholder Rights Agreement dated as of July 11, 1994
between the Registrant and Continental Stock Transfer &
Trust Company, as Rights Agent (P)
10.1 Employment and consulting agreement with Neil Rosenstein
(B), as amended (F), and as further amended (H)(U)
10.2 License agreements with Albertson's, Inc. (A)(M)
10.3 Agreement with K Mart Corporation, as revised on November
1, 1990 (F)
10.4 License agreement with Longs Drug Stores California, Inc. (A)
10.5 License agreements with Lucky Stores, Inc., as revised on
October 31, 1991 (H)
10.6 License agreements with American Drug Stores, Inc.,
formerly Osco Drug, Inc., as revised on October 31, 1991 (H)
10.7 License agreement with Pay Less Drug Stores Northwest,
Inc., as revised on April 14, 1992 (H)
10.8 License agreement with Safeway Stores, Inc. (A)
10.9 Agreement with Warehouse Markets (A)
10.10 Agreement with Phar-Mor (D)
10.11 Asset Purchase Agreement with The Nugget, Inc. (D)
10.12 Agreement of Sale, First and Second Amendments to Agreement
of Sale, with The Owl Investment Company and The Owl
Corporation (D)
10.13 1990 Incentive and Nonqualified Stock Option Plan (E)(U)
10.14 Employment Agreement with Frederick Sandvick (F)(U)
10.15 Indemnification Agreement (Sample) (F)
10.16 Salary Continuation Plan for Executives (F)(U)
10.17 Form of Retirement Plan for Directors (H)
10.18 Amendment No. 2 to Employment Agreement with Neil
Rosenstein (F)(U)
10.19 Asset purchase agreement with International Gaming
Technology and its wholly-owned subsidiaries, IGT and
Electronic Data Technologies (G)(I)
10.20 1992 Incentive and Non-qualified Stock Option Plan (J)(U)
10.21 Employment Agreement with John F. O'Reilly (M)(U)
10.22 Employment Agreement with Jeffrey L. Gilbert (K)(U)
10.23 In Re: Jackpot Enterprises, Inc., Securities Litigation,
United States District Court, District of Nevada, Case No.
CV-5-89-805-LDG-RJJ; Stipulation of Settlement for the
Class Action (L)
10.24 In Re: Jackpot Enterprises, Inc., Securities Litigation,
United States District Court, District of Nevada, Case No.
CV-5-89-805-LDG-RJJ; Stipulation of Settlement for the
Derivative Action (L)
10.25 Agreement with President Riverboat Casinos-Mississippi,
Inc. (M)
10.26 Form of First Amendment to Retirement Plan for Directors (N)
10.27 Settlement Agreement with John F. O'Reilly (Q)
10.28 Employment Agreement dated as of September 8, 1994 with Don
R. Kornstein (R)(U)
10.29 Settlement Agreement by and among Winners Entertainment,
Inc. (formerly Excalibur Holding Corporation), Mountaineer
Park, Inc. and Jackpot Enterprises, Inc. (S)
11.1 Computation of Earnings (Loss) per Common Share (T)
22.1 List of Registrant's subsidiaries (T)
23.1 Consent of Deloitte & Touche LLP (T)
25.1 Statement of Eligibility and Qualification of Bankers Trust
Company as Trustee on Form T.1 (A)
27.1 Financial Data Schedule (EDGAR version only)
(A) Incorporated by reference to Registrant's Registration
Statement on Form S-2 dated May 4, 1989 (Registration
No. 33-27614).
(B) Incorporated by reference to Registrant's Annual Report
on Form 10-K for the year ended June 30, 1988.
(C) Incorporated by reference to Registrant's Annual Report
on Form 10-K for the year ended June 30, 1989.
(D) Incorporated by reference to Registrant's Annual Report
on Form 10-K for the year ended June 30, 1990.
(E) Incorporated by reference to Registrant's Registration
Statement on Form S-3 dated December 12, 1990 (Registration
No. 33-38210).
(F) Incorporated by reference to Registrant's Annual Report
on Form 10-K for the year ended June 30, 1991.
(G) Incorporated by reference to Registrant's Form 8-K dated
July 30, 1992.
(H) Incorporated by reference to Registrant's Annual Report
on Form 10-K for the year ended June 30, 1992.
(I) Incorporated by reference to Registrant's Form 8 dated
October 10, 1992 amending its Current Report on Form 8-K
dated July 30, 1992.
(J) Incorporated by reference to Registrant's 1992 Proxy
Statement.
(K) Incorporated by reference to Registrant's Form 10-Q for
the quarter ended March 31, 1993.
(L) Incorporated by reference to Registrant's Registration
Statement on Form S-3 dated July 8, 1993 (Registration
No. 33-61624).
(M) Incorporated by reference to Registrant's Annual Report
on Form 10-K for the year ended June 30, 1993.
(N) Incorporated by reference to Registrant's Form 10-Q for
the quarter ended September 30, 1993.
(O) Incorporated by reference to Registrant's 1993 Proxy
Statement.
(P) Incorporated by reference to Registrant's Form 8-A dated
July 12, 1994.
(Q) Incorporated by reference to Registrant's Annual Report
on Form 10-K for the year ended June 30, 1994.
(R) Incorporated by reference to Registrant's Form 10-Q for
the quarter ended September 30, 1994.
(S) Incorporated by reference to Registrant's Form 10-Q for
the quarter ended March 31, 1995.
(T) Included herein.
(U) Management contract or compensatory plan or arrangement
which is separately identified in accordance with Item
14(a)(3) of Form 10-K.
(d) Schedules
For a list of the financial statement schedules filed as a
part of this annual report on Form 10-K, see "Index to Financial
Statements, Supplementary Data and Financial Statement Schedules"
on page F-1.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: September 21, 1995 JACKPOT ENTERPRISES, INC.
(Registrant)
By: /s/ Don R. Kornstein
______________________
Don R. Kornstein
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Don R. Kornstein President,
____________________________ Chief Executive Officer September 21, 1995
Don R. Kornstein and Director
(Principal Executive Officer)
/s/ Bob Torkar Senior Vice President-
____________________________ Finance, September 21, 1995
Bob Torkar Treasurer and Chief
Accounting Officer
(Principal Financial and
Accounting Officer)
/s/ Allan R. Tessler Chairman of the Board September 21, 1995
____________________________
Allan R. Tessler
/s/ David R. Markin Director September 21, 1995
____________________________
David R. Markin
/s/ Robert L. McDonald, Sr. Director September 21, 1995
____________________________
Robert L. McDonald, Sr.
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS, SUPPLEMENTARY DATA
AND FINANCIAL STATEMENT SCHEDULES
[ITEMS 8 AND 14(a)]
(1) FINANCIAL STATEMENTS:
Independent Auditors' Report
Consolidated Balance Sheets
June 30, 1995 and 1994
Consolidated Statements of Operations
Years Ended June 30, 1995, 1994 and 1993
Consolidated Statements of Stockholders' Equity
Years Ended June 30, 1995, 1994 and 1993
Consolidated Statements of Cash Flows
Years Ended June 30, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
(2) SUPPLEMENTARY DATA:
Quarterly Financial Information
Years Ended June 30, 1995 and 1994
(3) FINANCIAL STATEMENT SCHEDULES
Financial Statement Schedules are omitted because of the absence of
conditions under which they are required or because the required
information is given in the consolidated financial statements or notes
thereto.
INDEPENDENT AUDITORS' REPORT
Jackpot Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets of Jackpot
Enterprises, Inc. (the "Corporation") and subsidiaries as of June 30,
1995 and 1994, and the related consoldiated statements of operations,
stockholders' equity, and cash flows for each of the three years in the
period ended June 30, 1995. These financial statements are the
responsibility of the Corporation's management. Our responsiblity is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accouting
principles used and significant estimates made by management, as well
as evaluting the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Jackpot Enterprises,
Inc. and subsidiaries at June 30, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the
period ended June 30, 1995 in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
__________________________
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
August 4, 1995
<PAGE>
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - JUNE 30, 1995 AND 1994
(Dollars in thousands)
<TABLE>
ASSETS 1995 1994
______ ________ ________
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 32,916 $ 23,543
Prepaid expenses 1,703 2,057
Deferred Federal income tax 5,093
Other current assets 2,637 2,123
________ ________
Total current assets 37,256 32,816
________ ________
Property and equipment, at cost:
Land and buildings 2,656 2,656
Gaming equipment 26,676 25,138
Other equipment 4,328 4,248
Leasehold improvements 713 1,037
________ ________
34,373 33,079
Less accumulated depreciation (19,322) (16,360)
________ ________
15,051 16,719
Lease acquisition costs and other
intangible assets, net of
accumulated amortization of
$6,061 and $6,241 7,292 10,278
Goodwill, net of accumulated
amortization of $2,341 and
$2,150 5,289 5,480
Lease and other security deposits 3,490 3,689
Other non-current assets 3,581 4,477
________ ________
Total assets $ 71,959 $ 73,459
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - JUNE 30, 1995 AND 1994
(Dollars in thousands, except share data)
(Concluded)
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
____________________________________ _______ ________
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 678 $ 1,447
Accounts payable 566 2,011
Due to equity investee 2,617
Other current liabilities 4,372 4,719
_______ _______
Total current liabilities 5,616 10,794
Long-term debt, less current portion 271 1,403
Deferred Federal income tax 471
Deferred rent 3,506 2,337
Accrued pension and other liabilities 2,350 2,188
_______ _______
Total liabilities 11,743 17,193
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; 9,595,388 and 9,345,240
shares issued 96 93
Additional paid-in capital 63,935 64,844
Accumulated deficit (180) (6,796)
Less 293,741 and 125,119 shares of
common stock in treasury, at cost (3,635) (1,875)
_______ _______
Total stockholders' equity 60,216 56,266
_______ _______
Total liabilities and
stockholders' equity $71,959 $73,459
======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(Dollars in thousands, except per share data)
<TABLE>
1995 1994 1993
_______ _______ _______
<S> <C> <C> <C>
Revenues:
Route operations $87,892 $90,168 $77,767
Casino operations 8,961 8,167 5,504
_______ _______ _______
Totals 96,853 98,335 83,271
Costs and expenses:
Route operations 66,342 65,656 53,835
Casino operations 7,904 6,842 4,938
Amortization 2,880 2,916 2,326
Depreciation 5,349 5,813 4,922
General and administrative 5,410 7,699 5,999
_______ _______ _______
Totals 87,885 88,926 72,020
_______ _______ _______
Operating income 8,968 9,409 11,251
_______ _______ _______
Other income (expense):
Interest and other income 1,053 758 889
Interest expense (146) (329) (2,072)
Equity investments:
Loss from operations of
equity investee (3,647)
Loss from write-down of property
and provision for closing costs (13,243)
Other expense
(50)
_______ _______ _______
Totals 907 (16,461) (1,233)
_______ _______ _______
Income (loss) before income tax 9,875 (7,052) 10,018
_______ _______ _______
Provision (credit) for
Federal income tax:
Current (588) 3,202 3,298
Deferred 3,847 (5,670) 214
_______ _______ _______
Totals 3,259 (2,468) 3,512
_______ _______ _______
Net income (loss) $ 6,616 $(4,584) $ 6,506
======= ======= =======
Earnings (loss) per common and common
equivalent share $ .72 $ (.50) $ .80
======= ======= =======
Earnings (loss) per common share
assuming full dilution $ .72 $ (.50) $ .78
======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(Dollars and shares in thousands, except per share data)
<TABLE>
Retained Treasury
Common Stock Additional Earnings Stock Total
____________ Paid-In (Accumulated____________ Stockholders'
Shares Amount Capital Deficit) Shares Amount Equity
______ ______ _________ __________ ______ ______ __________
<S> <C> <C> <C> <C> <C> <C> <C>
Balance July 1,
1992 5,608 $56 $20,719 $ 2,606 (27) $ (330) $23,051
Distribution of
warrants to
debentureholders 1,584 1,584
Distribution of
warrants to
stockholders 2,606 (2,606)
Distribution of
warrants for
settlement of
litigation 800 800
Tax benefit
from stock
options 1,670 1,670
Cash dividends
($.38 per share) (429) (2,422) (2,851)
Issuance and
receipt of
shares on
exercise of
stock options 548 5 5,145 (39) (659) 4,491
Issuance of
shares on
conversion of
debentures 2,234 22 27,717 27,739
Issuance of
shares on
exercise of
warrants 22 1 370 371
Issuance of
shares for 10%
stock dividend 835 8 4,076 (4,084)
Net income 6,506 6,506
_____ ___ _______ _______ ____ _______ _______
Balance June 30,
1993 9,247 92 64,258 - (66) (989) 63,361
Tax benefit
from stock
options 147 147
Cash dividends
($.31 per share) (668) (2,212) (2,880)
Issuance and
receipt of
shares on
exercise of
stock options 89 1 970 (49) (752) 219
Issuance of
shares on
exercise of
warrants 9 137 137
Receipt of
shares in
connection
with legal
settlement (10) (134) (134)
Net loss
(4,584) (4,584)
_____ ___ _______ _______ ____ _______ _______
Balance June 30,
1994 9,345 93 64,844 (6,796) (125) (1,875) 56,266
Tax benefit
from stock
options 277 277
Cash dividends
($.32 per share) (2,950) (2,950)
Issuance and
receipt of
shares on
exercise of
stock options 250 3 1,764 (169) (1,760) 7
Net income 6,616 6,616
_____ ___ _______ _______ ____ _______ _______
Balance June 30,
1995 9,595 $96 $63,935 $ (180) (294) $(3,635) $60,216
===== === ======= ======= ==== ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(Dollars in thousands)
<TABLE>
1995 1994 1993
_______ ________ _______
<S> <C> <C> <C>
Operating activities:
Net income (loss) $ 6,616 $(4,584) $ 6,506
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 8,229 8,729 7,248
Deferred Federal income tax 3,847 (5,670) 214
Loss from operations of equity investee 3,647
Write-down of property and provision
for closing costs 13,243
Other, net (410) 571 18
Increase (decrease) from changes in:
Prepaid expenses and other current assets (384) 339 500
Other non-current assets 108 516 449
Accounts payable and other current
liabilities (1,269) 513 2,304
Federal income tax payable 2,198
Deferred rent and other liabilities 1,331 1,063 (1,730)
_______ _______ _______
Net cash provided by operating
activities 18,068 18,367 17,707
_______ _______ _______
Investing activities:
Purchases of short-term investments
with maturities of less than three months (17,256)
Proceeds from sales of other short-term
investments, net 509 11,892 14,080
Proceeds from sales of equipment and
other non-current assets 1,053 465 354
Purchases of property and equipment (4,044) (13,452) (2,160)
Increase in lease acquisition costs
and other intangible assets (501) (2,721) (195)
Lease and other security deposits 27 (2,156) (3)
Payment for the acquisition of business (2,307)
Investment in and advances to equity investee (1,498) (3,425)
Other, net 124 (292) (851)
_______ _______ _______
Net cash used in investing activities (4,330) (9,689) (8,338)
_______ _______ _______
Financing activities:
Payments of long-term debt (1,422) (1,305) (1,016)
Proceeds from long-term debt 275
Proceeds from issuance of common stock 7 356 4,862
Dividends paid (2,950) (2,880) (2,851)
Other (574) (105)
_______ _______ _______
Net cash provided by (used in)
financing activities (4,365) (4,128) 890
_______ _______ _______
Net increase in cash and cash equivalents 9,373 4,550 10,259
Cash and cash equivalents at beginning of year 23,543 18,993 8,734
_______ _______ _______
Cash and cash equivalents at end of year $32,916 $23,543 $18,993
======= ======= =======
Supplemental disclosures of cash flow data:
Cash paid during the year for:
Interest $ 146 $ 329 $ 1,690
Federal income tax $ 2,900 $ 1,100
Non-cash investing and financing activities:
Installment obligations in connection with
acquisition of business $ 4,319
Issuance of common stock on conversion of
debentures $29,865
Distribution of warrants $ 4,190
Common stock surrendered on exercise
of stock options $ 1,760 $ 752 $ 659
Tax benefit from exercise of stock options $ 277 $ 147 $ 1,670
Issuance of common stock for 10% stock dividend $ 4,084
Reduction of debt upon sale of other
non-current asset $ 479
</TABLE>
See Notes to Consolidated Financial Statements.
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Significant accounting policies and business:
Principles of consolidation:
The accompanying consolidated financial statements include the
accounts of Jackpot Enterprises, Inc. and its controlled subsidiaries
("Jackpot"). All material intercompany accounts and transactions are
eliminated. In September 1993, Jackpot entered into an agreement with
President Riverboat Casinos - Mississippi, Inc. ("President") which
provided for the joint management of a dockside casino facility in
Tunica County, Mississippi (the "Tunica Facility") under a wholly-owned
subsidiary of Jackpot. Under this arrangement, Jackpot did not have
ultimate control over the Tunica Facility and, therefore, for financial
statement purposes, accounted for the Tunica Facility under the equity
method (see Note 4).
Business:
Jackpot, which was organized in 1980, conducts business in the
gaming industry and generates revenues from gaming machine route
operations and casino operations. Gaming machine route operations
involve the installation, operation and service of gaming machines
owned by Jackpot that are located in licensed, leased or subleased
space in retail stores (supermarkets, drug stores, merchandise stores
and convenience stores), bars and restaurants throughout Nevada.
Cash equivalents:
Cash equivalents are liquid investments with an original maturity of
three months or less when acquired and are considered cash equivalents for
purposes of the consolidated statements of cash flows. Cash equivalents
are stated at cost which approximates fair value due to their short
maturity.
Revenue recognition:
In accordance with industry practice, Jackpot recognizes as gaming
revenues the net wins from gaming activities, which is the difference
between gaming wins and losses. Route operations' revenues include the
net wins generated under revenue-sharing agreements. Revenue-sharing
payments to route locations are recorded as costs of route operations.
Revenues from casino operations are gaming wins less losses.
Complimentary food and beverage furnished gratuitously by casino
operations to customers is not material.
Location rent expense:
Fixed rental payments (including scheduled increases) are recorded
on a straight-line basis over the agreement term including any optional
extension periods which are expected to be exercised. Contingent
payments are expensed in the period incurred. Renewal agreements are
considered new agreements and accounted for as described above over
the new agreement term.
Preopening costs:
Certain costs incurred prior to and in connection with the opening
of a casino operation are capitalized and expensed upon the opening of
the casino.
Depreciation of property and equipment:
Depreciation is provided using the straight-line method for property
and equipment, including property held for rental. Estimated useful
lives, limited as to leasehold improvements by the term of the lease,
range as follows:
Buildings 30 to 40 years
Gaming equipment 4 to 7 years
Other equipment 3 to 7 years
Leasehold improvements 1 to 21 years
Lease acquisition costs and other intangible assets:
Significant incremental costs associated with the acquisition of
location leases are capitalized. Incremental costs capitalized and
amounts allocated to lease acquisition costs are amortized on a
straight-line basis over the term of the related leases, including
expected renewals, which range from 1 to 20 years. Lease acquisition
costs and other intangible assets include lease acquisition costs,
net of accumulated amortization, of $5,968,000 and $8,381,000 as of
June 30, 1995 and 1994.
Goodwill:
Goodwill represents the excess of the costs of acquired businesses
over the fair value of their net assets when acquired and is amortized
on a straight-line basis over a period of 40 years.
Income taxes:
A deferred tax liability or asset is recognized at each balance
sheet date that represents the amount of tax expected to be payable or
refundable in future years as a result of temporary differences between
the tax bases of assets and liabilities and their financial reporting
amounts, using current tax rates and laws. The deferred portion of the tax
provision or benefit is the result of changes in the net deferred tax
asset or liability for the period.
Earnings (loss) per share:
Primary earnings (loss) per common and common equivalent share and
earnings (loss) per common share assuming full dilution are computed
using the weighted average number of outstanding shares adjusted for
the incremental shares attributed to outstanding options and warrants
to purchase common stock during each period. For 1995 and 1994 the
effect of options and warrants was excluded from the computations since
they had no effect or were antidilutive. The weighted average number
of common shares and common share equivalents used in 1995 and 1994
was 9,235,000 and 9,211,000.
Earnings per common and common equivalent share in 1993 is computed
by dividing (i) net income, as adjusted, by (ii) the weighted average
number of common shares outstanding adjusted for the number of common
share equivalents attributable to stock options and warrants. The
adjusted net income used for the computation was $6,841,000 and the
weighted average number of common shares and common share equivalents
used in the computation was 8,532,000. Earnings per common share
assuming full dilution in 1993 is computed as above and assumes
conversion of the 8.75% convertible subordinated debentures due 2014
(the "Debentures") and the use of period-end market prices
of Jackpot's common stock in the computation of common share equivalents
attributable to stock options and warrants. The adjusted net income used
for the computation was $7,793,000 and the weighted average number of
common shares and common share equivalents used in the computation was
10,034,000.
Reclassifications:
Certain accounts in the 1994 and 1993 consolidated financial
statements have been reclassified to conform to the 1995 presentation.
Note 2 - Cash and cash equivalents:
Cash equivalents are comprised primarily of marketable municipal
bonds and money market accounts. Cash and cash equivalents include cash
equivalents (dollars in thousands) of $23,707 and $15,075 at June 30,
1995 and 1994.
Note 3 - Business acquisitions:
On July 1, 1992 and August 17, 1992, respectively, Jackpot completed
the purchase of a substantial portion of two gaming machine route
operations in Nevada, one from Bally Gaming, Inc. consisting of
approximately 175 gaming machines in 25 locations and one from
International Game Technology and its subsidiary, Electronic Data
Technology, (collectively "IGT") consisting of approximately 1,650
gaming machines in 200 locations, including an exclusive license to
distribute and operate "Megapoker," a linked progressive video poker
system, at non-casino Nevada gaming locations.
Each acquisition has been accounted for as a purchase. The results
of operations of these businesses have been included in Jackpot's
consolidated financial statements from the dates of acquisition.
The aggregate purchase price of the acquisitions, including related
acquisition costs, was approximately $6,900,000. The assets acquired
consisted principally of gaming machines, location agreements, computer
hardware, the rights and licenses to use the Megapoker software,
tradenames, trademarks, location contracts and covenants not to compete.
Costs allocated to lease rights, software and trademark license rights
and covenants not to compete are amortized using the straight-line method
over their estimated useful lives, ranging from one to seven years.
The term of the Megapoker license agreement is for a period of seven
years commencing November 1992. Jackpot has the right to renew the
Megapoker licenses for up to two additional seven year periods.
During the term of the license agreements, a royalty payment is due
monthly.
The following summarized unaudited pro forma consolidated financial
information for 1993 assumes the acquisitions had occurred at the
beginning of 1993 (dollars in thousands, except per share amounts):
<TABLE>
1993
_______
<S> <C>
Revenues $85,480
Net income $ 6,460
Earnings per common and
common equivalent share $ .80
Earnings per common
share assuming full dilution $ .77
</TABLE>
The unaudited pro forma results summarized above include adjustments
for depreciation of equipment acquired, amortization of intangible assets
acquired, interest expense resulting from debt incurred and a reduction of
interest income resulting from cash paid in the acquisition as well as
certain other adjustments and are based upon certain assumptions and
estimates which Jackpot believes are reasonable. The pro forma financial
information does not purport to be indicative either of results of
operations that would have occurred had the acquisitions been made at the
beginning of 1993, or future results of operations of the combined
companies.
Note 4 - Other transactions:
South Dakota:
As a result of continuous evaluation of market and gaming conditions
in Deadwood, South Dakota, management determined in the third quarter of
1995 that the value of Jackpot's investments in property had been further
impaired. Accordingly, Jackpot wrote down its assets by $800,000 in the
third quarter of 1995. On June 30, 1995 Jackpot permanently closed all
operations in South Dakota. The carrying value of Jackpot's assets in
South Dakota, net of depreciation and write-downs to estimated recoverable
value was approximately $786,000 at June 30, 1995. Jackpot holds all of
its properties in South Dakota for sale.
Tunica, Mississippi dockside gaming facility:
In September 1993, Jackpot entered into an agreement with President
whereby Jackpot agreed to provide the necessary improvements to a site
leased by Jackpot in Tunica, Mississippi and President agreed to provide
to Jackpot the use of a riverboat, fully converted to a gaming
configuration, and a floating restaurant with meeting facilities for the
Tunica Facility that would be jointly managed by President and Jackpot.
Jackpot and President commenced operations of the Tunica Facility in
December 1993. President and Jackpot elected to permanently close all
operations on July 8, 1994. As a result of the permanent closure of the
Tunica Facility, Jackpot recognized a charge to expense of $13,243,000
in the fourth quarter of 1994, which included the write down to estimated
recoverable value of $11,371,000 for the remaining carrying value of
its assets associated with the Tunica Facility and the provision of
$1,872,000 for closing costs.
The results of operations for 100% of the Tunica Facility before
closing costs and write down of assets to net recoverable value for
the period from December 6, 1993 (date of commencement) to June 30, 1994
is summarized below (dollars in thousands):
<TABLE>
1994
_______
<S> <C>
Revenues $14,650
Costs 24,451
_______
Operating loss $ 9,801
=======
The operating loss of $9,801,000 in 1994 includes the write-off of
approximately $3,024,000 of preopening costs and does not include
income taxes. Pursuant to the terms of the agreement between Jackpot
and President, Jackpot's share of the operating loss was $3,647,000,
which excludes $894,000 of related expenses incurred by Jackpot.
Interest expense incurred during the construction period was not
capitalized because it was not material.
In the third quarter of 1995, Jackpot sold certain assets associated
with the Tunica Facility. The gain from the sale of such assets, net
of the write-down of the South Dakota properties described above was
$75,000 and is included in 1995 under the caption "interest and other
income" in the accompanying consolidated statements of operations.
Note 5 - Other current liabilities:
Other current liabilities consist of the following (dollars in thousands):
</TABLE>
<TABLE>
June 30,
__________________
1995 1994
______ ______
<S> <C> <C>
Accrued employee benefits $2,340 $2,357
Accrued professional fees 276 569
Accrued progressive jackpots 434 381
Outstanding token liability 318 142
Other 1,004 1,270
______ ______
Totals $4,372 $4,719
====== ======
</TABLE>
Note 6 - Long-term debt:
Long-term debt was comprised of the following (dollars in thousands):
<TABLE>
June 30,
_________________
1995 1994
______ ______
<S> <C> <C>
Amounts payable in forty
monthly installments of
$126 to IGT from August
1992 through December 1995,
net of unamortized discount
(computed at 8.5% interest
rate) of $16 and $143,
respectively $ 661 $2,049
Other 288 801
______ ______
Totals 949 2,850
Less current portion 678 1,447
______ ______
Non-current portion $ 271 $1,403
====== ======
</TABLE>
Maturities of long-term debt at June 30, 1995 are as follows
(dollars in thousands):
<TABLE> <S> <C>
1996 $678
1997 18
1998 19
1999 229
2000 5
____
Total $949
====
</TABLE>
During 1993 Jackpot issued approximately 2,234,000 shares of common
stock to holders of the Debentures upon conversion of $29,865,000
principal amount of the Debentures, at a conversion price of $12.15
per share, and redeemed $56,000 principal amount of the Debentures
pursuant to the Indenture. The conversions resulted in an increase
to stockholders' equity of $27,739,000, representing the principal
amount of the conversions net of related costs of $2,126,000
($2,841,000 of deferred costs less $715,000 of accrued interest
expense), and have been treated as "non-cash" transactions.
Note 7 - Stockholders' equity:
Authorized common stock:
On January 6, 1994, the stockholders approved an increase in the
number of authorized shares of common stock from 15,000,000 to 30,000,000.
Stock dividend:
On July 1, 1993, Jackpot's Board of Directors declared a 10% common
stock dividend which was paid on July 30, 1993 to holders of record
on July 16, 1993. Accordingly, the accompanying consolidated statements
of stockholders' equity retroactively reflect the stock dividend for
the 1993 period. In addition, all share and per share amounts in the
accompanying consolidated statements of operations and the notes to the
consolidated financial statements for the 1993 period have been adjusted
to give retroactive effect to the stock dividend.
Shares reserved for issuance:
Shares of common stock were reserved for the exercise of the following
(shares in thousands):
<TABLE>
June 30,
______________
1995 1994
_____ _____
<S> <C> <C>
Nonqualified and incentive
stock option plans:
Outstanding 1,669 1,369
Available for grant 1,130 182
Other nonqualified stock options 429 1,078
Warrants 1,747 1,747
_____ _____
Totals 4,975 4,376
===== =====
</TABLE>
Stock option plans:
On December 7, 1990, Jackpot's stockholders approved the 1990
Incentive and Nonqualified Stock Option Plan (the "1990 Plan"),
which became retroactively effective on June 27, 1990. Under the
1990 Plan, Jackpot's Board of Directors (the "Board") may grant
"incentive" or "nonqualified" stock options up to 929,846 shares
of Jackpot's common stock (the "Common Stock"). On September 30,
1992, the Board adopted the 1992 Incentive and Non-qualified Stock
Option Plan (the "1992 Plan") which was approved by Jackpot's
stockholders on January 12, 1993. The 1992 Plan is administered by
a committee of the Board (the "Committee"). On August 17, 1994,
the Board approved certain amendments (the "Amendments") to the
1992 Plan which were approved by Jackpot's stockholders on January 10,
1995. The Amendments increased the number of shares of Common Stock
authorized for issuance pursuant to the 1992 Plan from 1,045,000
shares to 2,545,000.
The 1990 Plan provides that the Board may grant options with an
exercise period of up to ten years from date of grant to directors,
officers and other employees who own less than 10% and five years
from date of grant to directors, officers and other employees who own
more than 10% of Common Stock. The 1992 Plan provides that the
Committee may grant nonqualified stock options with an exercise
period of up to ten years from date of grant. Incentive stock options
may be granted with an exercise period of up to ten years from date of
grant to officers and other employees who own less than 10% of the
Common Stock and five years to officers and other employees who own more
than 10% of the Common Stock. Under both the 1990 and 1992 Plans,
incentive stock options may not be granted at an exercise price less
than 100% of the fair market value of the Common Stock at the time the
option is granted to an individual who owns less than 10% of the Common
Stock and 110% of the fair market value to an individual who owns more
than 10% of the Common Stock. Nonqualified stock options may not be
granted at an exercise price less than 50% of the fair market value of
the Common Stock at the time the option is granted.
The 1992 Plan provides that each individual who is a member of the
Board on June 30 of any year, beginning June 30, 1992, including any
future director on any such date, will automatically be granted
nonqualified stock options to purchase 27,500 shares of Common Stock
on each such June 30. The option price for each June 30 grant will
be 100% of the fair market value of the Common Stock on the following
September 30. Each option granted to a director will become exercisable
after September 30 of each year, except for the June 30, 1992 grants
which became effective on January 12, 1993, and expire five years from
the date of grant. For the three years ended June 30, 1995, options to
purchase an aggregate of 302,500 shares of Common Stock at exercise prices
ranging from $9.50 to $15.875 per share were automatically granted to
directors and 55,000 options expired. The exercise price of the June 30,
1995 option grants will be determined September 30, 1995, at which time
the options become exercisable. At June 30, 1995, options to purchase an
aggregate of 357,500 shares of Common Stock were outstanding, of which
247,500 were exercisable.
The 1990 and 1992 Plans terminate on the earlier of (i) when all shares
subject to the 1990 and 1992 Plans have been issued pursuant to the
exercise of options granted under the 1990 and 1992 Plans and (ii) June 26,
2000 and September 30, 2002, respectively, or on such earlier date as the
Board or the Committee may determine. Any option outstanding at the
respective Plan termination date remains outstanding until it has either
expired or has been exercised.
Changes in options outstanding under the stock option plans are
summarized below (shares in thousands):
<TABLE>
Number of Shares
________________ Per Share
Incentive Nonqualified Exercise Price
_________ ____________ ______________
<S> <C> <C> <C>
Outstanding at July 1, 1992 165 750 $ 5.79 to $15.05
Automatic grant to directors 110 $15.88
Other grants 248 $14.66
Exercised (103) (150) $ 5.91 to $10.75
Canceled (21) $ 6.10 to $ 7.49
_____ _____
Outstanding at June 30, 1993 41 958 $ 5.79 to $15.05
Automatic grant to directors 82 $ 9.50
Other grants 368 $11.63 to $20.88
Exercised (4) (17) $ 9.61
Canceled (4) (55) $15.05 to $15.88
_____ _____
Outstanding at June 30, 1994 33 1,336 $ 5.79 to $20.88
Automatic grant to directors 110 (A)
Other grants 872 $ 8.50 to $ 9.25
Exercised (155) $ 6.10 to $ 8.50
Canceled (2) (525) $ 5.79 to $20.88
_____ _____
Outstanding at June 30, 1995
(825 shares exercisable) 31 1,638 $ 6.10 to $20.88
===== =====
</TABLE>
(A) To be determined on September 30, 1995.
Other nonqualified stock options:
The Board has granted other nonqualified stock options to directors,
certain officers, other employees and advisors at exercise prices equal
to or greater than the fair market value of the underlying shares at the
date of grant. Generally, options become exercisable immediately and
expire no later than five years from the date of grant.
Changes in other nonqualified stock options are summarized below
(shares in thousands):
<TABLE>
Number Per Share
of Shares Exercise Price
________ _________________
<S> <C> <C>
Outstanding at July 1, 1992 899 $ 6.28 to $11.25
Exercised (354) $ 6.28 to $10.63
_____
Outstanding at June 30, 1993 545 $ 6.28 to $11.25
Granted 600 $15.00 to $20.91
Exercised (67) $11.25
_____
Outstanding at June 30, 1994 1,078 $ 6.28 to $20.91
Exercised (95) $ 6.28
Canceled (554) $10.87 to $20.91
_____
Outstanding and exercisable
at June 30, 1995 429 $ 9.19 to $15.00
=====
</TABLE>
Common Stock warrants:
On July 31, 1992, Jackpot distributed 1,071,649 warrants to purchase
Common Stock to stockholders and 418,894 warrants to purchase Common
Stock to Debentureholders of record on July 17, 1992 (the "Warrants").
The Warrants were distributed in connection with a special rights
issuance declared by the Board of Directors on July 1, 1992 consisting
of one Warrant for five shares of Common Stock and 14 Warrants for each
$1,000 principal amount of the Debentures. Each Warrant represents the
right to buy 1.1 shares of Common Stock at an exercise price of $15.68
per share. The exercise price is subject to certain antidilution
provisions protecting the holder of the Warrant. The Warrants became
exercisable on September 14, 1992, the effective date of a registration
statement filed for the underlying Common Stock, and expire, if
unexercised, on January 31, 1996. Jackpot may redeem the Warrants at a
price of $1.82 per Warrant because the Common Stock has traded at a
predetermined trigger price (120% of the exercise price).
As a result of the Warrant distribution, Jackpot recorded $4,190,000
as additional paid-in capital, of which $2,606,000 was capitalized from
retained earnings representing the aggregate value of the Warrants
distributed to the stockholders, limited by the amount of available
retained earnings as of July 1, 1992, and $1,584,000 was included as
deferred interest representing the aggregate value, net of costs, of
the Warrants distributed to the Debentureholders. All of the deferred
interest was initially included in other assets and amortized on a
straight-line basis beginning July 1, 1992 over the term of the Debentures.
However, as a result of the Debenture conversions and redemptions in 1993,
$1,567,000 of the deferred interest has been recorded as a reduction to the
aggregate increase in stockholders' equity. The value of the Warrants was
determined by using the average of the high and low market prices for the
period the Warrants traded prior to July 31, 1992. Also, an additional
128,000 Warrants were distributed in 1993 in connection with a legal
settlement.
In 1994, 9,280 shares of Common Stock were issued on exercise of Warrants.
As of June 30, 1995, there were 1,588,195 Warrants outstanding and
1,747,015 shares of Common Stock reserved for issuance upon exercise of
the Warrants.
Preferred stock purchase rights:
In June 1994, Jackpot's Board of Directors approved a Stockholder
Rights Plan and on July 11, 1994, declared a dividend distribution of one
Preferred Stock purchase right (the "Rights") payable on each outstanding
share of Common Stock, as of July 15, 1994. On July 15, 1994, there were
approximately 9,220,000 Rights to purchase Series A Junior Preferred Stock
outstanding.
The Rights become exercisable only in the event, with certain exceptions,
an acquiring party accumulates 15% or more of Jackpot's voting stock, or
if a party announces an offer to acquire 30% or more of Jackpot's voting
stock. The Rights will expire on July 15, 2004. Each Right will entitle
the holder to purchase one-hundredth of a share of a Series A Junior
Preferred Stock at a price of $30. In addition, upon the occurrence of
certain events, holders of the Rights will be entitled to purchase either
Jackpot's Preferred Stock or shares in an "acquiring entity" at half of
market value.
The Rights may be redeemed by Jackpot at $.01 per Right prior to the close
of business on the tenth day after a public announcement that beneficial
ownership of 15% or more of Jackpot's shares of voting stock has been
accumulated by a single acquiror or a group (with certain exceptions),
under circumstances set forth in the Rights Agreement. At June 30, 1995
and July 15, 1994, respectively, 150,000 shares of Series A Junior
Preferred Stock were authorized, but unissued, and were reserved for
issuance upon exercise of the Rights. The issuance of the Rights did
not have a dilutive effect on earnings (loss) per share in 1995, 1994
and 1993.
Note 8 - Related party transactions:
One director of Jackpot is a partner in a law firm that has provided
various legal services for which Jackpot accrued legal fees aggregating
approximately $163,000, $275,000 and $116,000 in 1995, 1994 and 1993.
Pursuant to the terms of an employment agreement between Jackpot and
a former Chief Executive Officer, such officer exercised his right in
June 1993 to purchase a life insurance policy from Jackpot for $358,053,
representing the amount of premiums paid by Jackpot through the date of
purchase. In exchange for the payment received, Jackpot credited the
officer's note receivable, which as of the date of payment totalled
$197,273, and the cash surrender value of the life insurance policy,
which amount approximated the difference. Interest on the note was
charged at 9% in 1993.
Note 9 - Commitments and contingencies:
Leases:
Jackpot has noncancelable location license, lease and sublease agreements
(referred to as "leases") for space at various locations for its gaming
machines with terms expiring at various dates through 2006. Leases are
generally at fixed rentals, although certain leases require payments based
on percentages of revenues generated by gaming machines at the leased
locations. In addition, office and warehouse space is utilized under
noncancelable leases with terms expiring at various dates through 2006.
In fiscal 1992 and 1993, Jackpot entered into certain new lease
agreements which took effect on July 1, 1992 and July 1, 1993 and provide
Jackpot the continued right to operate approximately 800 gaming machines
at certain existing locations, the right to operate approximately 374
gaming machines at twelve new locations and the right to operate gaming
machines at an unspecified number of future locations. The acquisition
costs associated with the new agreements aggregated approximately
$5,000,000. Accordingly, the costs associated with the new agreements
have been capitalized and are being amortized on a straight-line basis
over the term of the related agreements.
Future minimum lease payments (dollars in thousands) under such non-
cancelable operating leases or licenses aggregated approximately $79,439
at June 30, 1995, payable as follows: $23,509 in 1996; $23,495 in 1997;
$20,589 in 1998; $7,656 in 1999; $636 in 2000; and $3,554 thereafter.
Rent expense was comprised as follows (dollars in thousands):
<TABLE>
1995 1994 1993
_______ ______ ______
<S> <C> <C> <C>
Location leases:
Fixed rentals $24,986 $26,530 $18,722
Percentage rentals 21,920 19,526 17,594
Office and equipment
leases 472 301 232
_______ _______ _______
Totals $47,378 $46,357 $36,548
======= ======= =======
</TABLE>
Employment agreements:
Jackpot entered into an employment agreement with Don R. Kornstein,
President, Chief Executive Officer and Director, effective September
8, 1994 which expires on September 30, 1997 but will automatically be
extended for additional one year periods on each October 1 commencing
October 1, 1995 unless notice is given by Jackpot or Mr. Kornstein.
The aggregate commitment for future salaries at June 30, 1995, excluding
bonuses, under all of Jackpot's employment agreements is approximately
$1,800,000. Mr. Kornstein's employment agreement provides for a bonus
per fiscal year based on various percentages of certain amounts by which
earnings before interest, taxes, depreciation and amortization, as
defined in the agreement, exceeds certain levels for such fiscal year.
Mr. Kornstein's bonus was $220,000 in 1995. In addition, Mr. Kornstein's
employment agreement provides for the payment of amounts equal to
three years' his annual compensation including bonuses if there is a
termination of his employment. The minimum contingent liability at
June 30, 1995 under all of Jackpot's employment and severance agreements
was approximately $2,300,000.
On April 20, 1995 Jeffrey L. Gilbert and Frederick Sandvick resigned
as Executive Vice President and Chief Operating Officer and Executive Vice
President and Chief Financial Officer, respectively. In connection with
the termination of their respective employment agreements, which was
effective April 28, 1995, Jackpot paid Messrs. Gilbert and Sandvick an
aggregate of approximately $770,000 in consideration for the termination
of employment and the cancellation of certain nonqualified stock options
in full satisfaction of all rights under their respective employment
agreements including, but not limited to, severance compensation and
accrued vacation. Options to purchase an aggregate of 475,085 shares of
Common Stock held by such persons were cancelled on April 28, 1995.
On May 3, 1994 (the "Resignation Date"), John F. O'Reilly resigned as
Chairman of the Board of Directors and Chief Executive Officer of Jackpot.
Pursuant to the terms of Mr. O'Reilly's employment agreement and
settlement agreement with Jackpot, Jackpot paid Mr. O'Reilly approximately
$1,256,000 in respect of (i) the present value of his salary through
June 30, 1996, the expiration of the term of Mr. O'Reilly's employment
agreement, and (ii) certain other compensation and life insurance premiums,
and granted to Mr. O'Reilly options to purchase 50,000 shares of
Common Stock at an exercise price of $15.00 per share exercisable for
three years from the Resignation Date. The fair market value of the
Common Stock based on the closing market price on the date of Mr.
O'Reilly's resignation was $10.00 per share. Options to purchase an
aggregate of 550,000 shares of Common Stock held by Mr. O'Reilly expired
on August 1, 1994.
Financial instruments with concentration of credit risk:
The financial instruments that potentially subject Jackpot to
concentrations of credit risk consist principally of cash, cash
equivalents, certain receivables and lease and other security deposits.
Jackpot maintains cash and certain cash equivalents with financial
institutions in amounts, which at times may be in excess of the FDIC
insurance limits. Jackpot's cash equivalents are invested in several
high-grade securities which limits Jackpot's exposure to concentrations
of credit risk.
A substantial portion of Jackpot's business activity is with customers
who frequent retail stores (supermarkets, drugstores, merchandise stores
and convenience stores) in Nevada. Generally, Jackpot leases space in
stores which are part of a large chain of stores. At June 30, 1995,
Jackpot had unsecured lease and other security deposits of $3,490,000 held
primarily by two publicly-held chain stores.
Letter of credit:
In November 1993, Jackpot and the Mississippi Power & Light Company
("MP&L") entered into a one-year agreement whereby Jackpot guaranteed
that it would use $1 million of electric service in connection with the
Tunica Facility (see Note 4). Such guarantee was secured by an irrevocable
letter of credit. Due to the closing of the Tunica Facility, Jackpot
accrued in 1994 its share of the estimated expense in connection with
the guarantee of electric service for the Tunica Facility. In December
1994, Jackpot and MP&L entered into a settlement and release agreement
pursuant to which the letter of credit was terminated. The settlement
did not have a material effect on Jackpot's financial position or its
results of operations.
Legal matters:
On August 17, 1992, 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 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. Jackpot, based upon advice of 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 and Jackpot
would be an unsecured creditor with respect to its claims against
Phar-Mor which exceed $3 million.
As a result of Phar-Mor's announcement, Jackpot wrote-off all remaining
costs related to lease deposits, prepaid rent and other lease connected
expenditures for Phar-Mor and adjusted certain amounts due Phar-Mor
pursuant to terms of the Original Agreement in the fourth quarter of
1995. The write-down of the above mentioned assets, net of certain
liability adjustments did not have a material effect on Jackpot's
financial position or its 1995 results of operations.
Jackpot is a party to various other claims, legal actions and complaints
arising in the ordinary course of business or asserted by way of defense
or counterclaim in actions filed by Jackpot. Management believes that
its defenses are substantial in each of these matters and that Jackpot's
legal position can be successfully defended without material adverse
effect on its consolidated financial statements.
Note 10 - Revenues derived from major locations:
Gaming machine operations at two groups of affiliated store chains
in 1995 and 1994 and one group in 1993 each accounted for more than 10% of
Jackpot's total revenues. Revenues for Jackpot's top two affiliated
store chains were approximately $22,000,000 and $12,000,000, respectively
in 1995, $21,000,000 and $10,000,000, respectively in 1994 and
$20,000,000 and $8,000,000, respectively in 1993. Each individual
store chain included in an affiliated group of store chains has a
separate lease with Jackpot.
Note 11 - Federal income tax:
A reconciliation of the Federal statutory income tax rate to the
effective income tax rate based on income (loss) before income tax
follows:
<TABLE>
1995 1994 1993
____ ____ ____
<S> <C> <C> <C>
Statutory rate 35.0% (35.0)% 34.0%
Increase (decrease) in
tax resulting from:
Surtax exemption (1.0) 1.0 -
Tax-exempt interest (2.6) (0.9) (0.6)
Amortization of goodwill 0.6 0.8 0.6
Other, net 1.0 (0.9) 1.1
____ ____ ____
Effective rate 33.0% (35.0)% 35.1%
==== ==== ====
</TABLE>
The tax items comprising Jackpot's net deferred tax asset (liability)
as of June 30, 1995, 1994 and 1993 are as follows (dollars in
thousands):
<TABLE>
1995 1994 1993
______ ______ ______
<S> <C> <C> <C>
Deferred tax assets:
Write-down of assets and
losses from Tunica Facility $ 105 $5,045
Deferred rent 1,205 808 $ 341
Other accrued liabilities 646 736 515
Retirement plans 663 527 546
Other 293 156 417
______ ______ ______
Totals 2,912 7,272 1,819
______ ______ ______
Deferred tax liabilities:
Difference between book and tax
basis of property 842 1,545 1,718
Economic performance accruals 500 630 554
Other 804 475 524
______ ______ ______
Totals 2,146 2,650 2,796
______ ______ ______
Net deferred tax asset
(liability) $ 766 $4,622 $ (977)
====== ====== ======
</TABLE>
Jackpot realized tax benefits of $277,000, $147,000 and $1,670,000 in 1995,
1994 and 1993 as a result of the exercise of certain incentive and
nonqualified stock options. The tax benefits have been reflected as a
decrease in current income tax payable and an increase in additional
paid-in capital.
Note 12 - Benefit plans:
In December 1985, Jackpot adopted a deferred profit sharing plan providing
for future retirement benefits and covering substantially all employees.
Contributions to the plan are at the discretion of the Board of Directors,
subject to limitations based on profits as specified in the plan. Plan
expense was $100,000 in 1995, 1994 and 1993, respectively.
Effective October 1, 1990, Jackpot implemented the Jackpot Retirement
Plan for Directors (the "Retirement Plan") and the Salary Continuation
Plan for Executives (the "Continuation Plan"). Both plans are defined
benefit plans.
The Retirement Plan will provide each director with a retirement benefit
in a lump sum amount equal to the aggregate of the annual base retainers
paid to the directors during each year of service on the Board, including
service prior to the implementation date. Interest is added to the
accounts of each director quarterly, using the one-year Treasury bill rate.
Directors who do not receive director's fees because they are executive
officers, will be deemed to have an annual base retainer equal to the
average base retainers paid to other directors for the year.
Subject to certain conditions, directors who have at least ten years of
service become entitled to a payment of their respective accrued
benefit upon retirement from the Board, "change of control" in Jackpot,
and certain other events. In November 1993, a former director of Jackpot
received a lump sum distribution of his accrued benefit in the amount of
$434,000 as a result of his retirement from the Board.
The Continuation Plan provides certain senior executives with a retirement
benefit, which is based on compensation, to be paid over a period of
15 years beginning at normal retirement age. The Continuation Plan is an
unfunded plan and requires certain vesting periods and allows reduced
benefits at certain early retirement ages and pre-retirement survivors'
benefits.
The Board waived current service benefits that would have accrued in
1995, 1994 and 1993 pursuant to the Retirement Plan and the Continuation
Plan, other than the interest earned on accrued benefits. The defined
benefit plans have no plan assets. For the funding of the accumulated
benefit obligation of the Retirement Plan, Jackpot had approximately
$1,400,000 at fair value in a restricted trust at June 30, 1995 and 1994,
respectively. Such amount is subject to general obligations of Jackpot
and included in other non-current assets in the accompanying consolidated
balance sheets.
The accrued pension liability under the defined benefit plan was $2,257,000
and $2,084,000 at June 30, 1995 and 1994, respectively. Such liability was
fully vested at June 30, 1995.
The pension expense for Jackpot's defined benefit plans for 1995, 1994 and
1993 includes the following components (dollars in thousands):
<TABLE>
1995 1994 1993
____ ____ ____
<S> <C> <C> <C>
Amortization of prior service cost $240 $240 $624
Interest cost on accrued benefits 83 118 105
____ ____ ____
Net pension expense $323 $358 $729
==== ==== ====
</TABLE>
Interest cost on accrued benefits is included in general and
administrative costs and expenses and the amortization of unrecognized
prior service cost is included in amortization expense in the
accompanying consolidated statements of operations. The unrecognized
prior service cost, net at June 30, 1995 and 1994 was $253,000 and
$493,000, respectively.
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
QUARTERLY FINANCIAL INFORMATION
YEARS ENDED JUNE 30, 1995 AND 1994
(Dollars in thousands, except per share data)
(Unaudited)
Summarized quarterly financial information for 1995 and 1994 follows:
<TABLE>
Quarter
_____________________________________________
1995 First Second Third Fourth
____ _______ _______ _______ _______
<S> <C> <C> <C> <C>
Revenues $23,623 $23,779 $24,237 $25,214
Gross operating income 3,643 3,978 3,918 3,966
Income before income tax 2,177 2,440 2,497 2,761
Net income 1,437 1,656 1,672 1,851
Earnings per share:
Primary .16 .18 .18 .20
Fully diluted .16 .18 .18 .20
1994
____
Revenues $23,521 $24,129 $24,899 $25,786
Gross operating income 4,249 4,569 4,741 5,162
Income (loss) before income
tax 2,920 847 2,011 (12,830)
Net income (loss) 1,898 551 1,307 (8,340)
Earnings (loss) per share:
Primary .19 .06 .14 (.90)
Fully diluted .19 .06 .14 (.90)
Gross operating income is revenues less route and casino expenses, depreciation
associated with gaming machine operations and amortization associated with
lease acquisition costs.
</TABLE>
EXHIBIT 11.1
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE (A)
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(Dollars in thousands, except per share data)
<TABLE>
Years Ended June 30,
______________________________
1995 1994 1993
______ _______ _______
<S> <C> <C> <C>
Primary: (B)
Earnings (loss):
Net income (loss) $ 6,616 $(4,584) $ 6,506
Add after tax interest, net (C) 335
_______ _______ _______
Net income (loss), as adjusted $ 6,616 $(4,584) $ 6,841
======= ======= =======
Shares:
Weighted average number of common shares
outstanding 9,235 9,211 7,393
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 1,139
_______ _______ _______
Weighted average number of common shares
and common share equivalents
outstanding 9,235 9,211 8,532
======= ======= =======
Primary earnings (loss) per share $ .72 $ (.50) $ .80
======= ======= =======
Fully diluted (D):
Earnings (loss):
Net income (loss) $ 6,616 $(4,584) $ 6,506
Add after tax interest, net (C) 228
Add after tax interest expense applicable
to 8.75% convertible subordinated
debentures 1,059
_______ _______ _______
Net income (loss), as adjusted $ 6,616 $(4,584) $ 7,793
======= ======= =======
Shares:
Weighted average number of common shares and
common share equivalents outstanding 9,235 9,211 8,532
Common shares issuable upon conversion of
8.75% convertible subordinated debentures 1,502
_______ _______ _______
Weighted average number of common shares and
common share equivalents outstanding,
as adjusted 9,235 9,211 10,034
======= ======= =======
Fully diluted earnings (loss) per share $ .72 $ (.50) $ .78
======= ======= =======
</TABLE>
(A) See Notes 1 and 7 of Notes to Consolidated Financial Statements.
(B) Retroactively adjusted for 10% stock dividend declared July 1, 1993.
(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).
(D) The calculations for 1995 and 1994 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 or
were antidilutive on earnings per share.
EXHIBIT 22.1
SUBSIDIARIES OF JACKPOT ENTERPRISES, INC.
STATE OF
COMPANY %OWNED INCORPORATION
1. Corral United, Inc. 100% Nevada
2. Cardivan Company 100% Nevada
3. Corral Coin, Inc. 100% Nevada
4. Corral Country Coin, Inc. 100% Nevada
5. Silver Slipper, Inc. 100% Nevada
6. Jackpot Gaming, Inc. 100% Nevada
7. American Amusement Corp. 100% Nevada
8. JPSD-2, Inc. 100% South Dakota
9. JPSD-3, Inc. 100% South Dakota
10. Jackpot Owl, Inc. 100% Nevada
11. Jackpot Casino, Inc. 100% Nevada
12. Deadwood Depot, Inc. 100% South Dakota
13. JPNV-1, Inc. 100% Nevada
14. JPSD-1, Inc. 100% South Dakota
15. Deadwood Nugget, Inc. 100% South Dakota
16. Jackpot City, Inc. 89% Nevada
17. Jackpot Mining Company, Inc. 95% South Dakota
18. Debbie's Casino, Inc. 100% Nevada
19. Jackpot Mississippi Riverboat, Inc. 100% Mississippi
20. Jackpot Louisiana Riverboat, Inc. 100% Louisiana
21. Jackpot Indiana Riverboat, Inc. 100% Indiana
22. Jackpot's Highway 93 Casino, Inc. 100% Nevada
23. Water Street Casino, Inc. 100% Nevada
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
Nos. 33-22990 and 33-38210, 33-51588 and 33-61624 on Form S-3 and in
Registration Statement Nos. 2-83273, 2-98984, 33-27288 and 33-38209 on
Form S-8 of Jackpot Enterprises, Inc., of our report dated August 4, 1995,
appearing in this Annual Report on Form 10-K of Jackpot Enterprises, Inc.
for the year ended June 30, 1995.
Las Vegas, Nevada
September 25, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Jackpot's
Consolidated Balance Sheets - June 30, 1995 and 1994 and its Consolidated
Statements of Operations - years ended June 30, 1995, 1994 and 1993 and is
qualified in its entirety by refernece to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 32,916
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 37,256
<PP&E> 34,373
<DEPRECIATION> 19,322
<TOTAL-ASSETS> 71,959
<CURRENT-LIABILITIES> 5,616
<BONDS> 271
<COMMON> 96
0
0
<OTHER-SE> 60,120
<TOTAL-LIABILITY-AND-EQUITY> 71,959
<SALES> 0
<TOTAL-REVENUES> 96,853
<CGS> 0
<TOTAL-COSTS> 74,246
<OTHER-EXPENSES> 7,102
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 146
<INCOME-PRETAX> 9,875
<INCOME-TAX> 3,259
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,616
<EPS-PRIMARY> .72
<EPS-DILUTED> .72
</TABLE>
