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