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 December 31, 1996
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 9,131,259 shares of the registrant's common stock outstanding as
of January 31, 1997.<PAGE>
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1996 and June 30, 1996
Condensed Consolidated Statements of Income -
Three and Six Months Ended December 31, 1996 and 1995
Condensed Consolidated Statement of Stockholders'
Equity - Six Months Ended December 31, 1996
Condensed Consolidated Statements of Cash Flows -
Six Months Ended December 31, 1996 and 1995
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 4. Submission of Matters to a Vote of Stockholders
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<TABLE>
December 31, June 30,
ASSETS 1996 1996
______ ___________ ________
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 43,310 $ 39,024
Prepaid expenses 1,280 1,740
Other current assets 1,869 3,515
________ ________
Total current assets 46,459 44,279
________ ________
Property and equipment, at cost:
Land and buildings 1,535 1,535
Gaming equipment 27,750 27,839
Other equipment 4,558 4,282
Leasehold improvements 338 336
________ ________
34,181 33,992
Less accumulated depreciation (21,294) (20,697)
________ ________
12,887 13,295
Lease acquisition costs and other
intangible assets, net of
accumulated amortization of
$5,771 and $5,142 4,097 4,749
Goodwill, net of accumulated
amortization of $2,465 and $2,382 4,157 4,240
Lease and other security deposits 3,436 3,436
Other non-current assets 379 743
________ ________
Total assets $ 71,415 $ 70,742
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(Unaudited)
(Concluded)
<TABLE>
December 31, June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1996
____________________________________ ____________ ________
<S> <C> <C>
Current liabilities:
Accounts payable $ 492 $ 504
Other current liabilities 3,168 3,439
_______ _______
Total current liabilities 3,660 3,943
Deferred rent 2,748 3,025
Accrued pension and other liabilities 141 279
_______ _______
Total liabilities 6,549 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 4,920 2,905
Less 378,883 and 293,748 shares
of common stock in treasury, at cost (4,472) (3,635)
_______ _______
Total stockholders' equity 64,866 63,495
Total liabilities and _______ _______
stockholders' equity $71,415 $70,742
======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE AND SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
Three Months Ended Six Months Ended
December 31, December 31,
__________________ ________________
1996 1995 1996 1995
_______ _______ _______ _______
<S> <C> <C> <C> <C>
Revenues:
Route operations $21,766 $20,448 $42,933 $41,055
Casino operations 794 1,936 1,582 4,130
_______ _______ _______ _______
Totals 22,560 22,384 44,515 45,185
_______ _______ _______ _______
Costs and expenses:
Route operations 17,182 15,569 34,159 31,345
Casino operations 714 1,729 1,467 3,492
Amortization 431 549 862 1,111
Depreciation 858 1,051 1,746 2,295
General and administrative 1,012 1,043 1,995 2,232
_______ _______ _______ _______
Totals 20,197 19,941 40,229 40,475
_______ _______ _______ _______
Operating income 2,363 2,443 4,286 4,710
_______ _______ _______ _______
Other income (expense):
Interest and other income 447 319 803 714
Interest expense (10) (22)
_______ _______ _______ _______
Totals 447 309 803 692
_______ _______ _______ _______
Income before income tax 2,810 2,752 5,089 5,402
_______ _______ _______ _______
Provision for Federal income tax:
Current 872 1,578
Deferred 881 1,729
_______ _______ _______ _______
Totals 872 881 1,578 1,729
_______ _______ _______ _______
Net income $ 1,938 $ 1,871 $ 3,511 $ 3,673
======= ======= ======= =======
Earnings per common share $ .21 $ .20 $ .38 $ .39
======= ======= ======= =======
Cash dividends per share of
common stock $ .08 $ .08 $ .16 $ .16
======= ======= ======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS'EQUITY
SIX MONTHS ENDED DECEMBER 31, 1996
(Dollars and shares in thousands, except per share data)
(Unaudited)
<TABLE>
Additional Treasury Total
Common Stock Paid-in Retained Stock Stockholders'
_____________ Capital Earnings _____________ Equity
Shares Amount Shares Amount
_____ ______ __________ ________ ______ _______ _____________
<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 (85) (837) (837)
Issuance
of shares
on exercise
of stock
options 20 1 192 193
Net
income 3,511 3,511
_____ ___ _______ _______ ____ _______ _______
Balance
December
31, 1996 9,651 $97 $64,321 $ 4,920 (379) $(4,472) $64,866
===== === ======= ======= ==== ======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
(Dollars in thousands)
(Unaudited)
<TABLE>
1996 1995
_______ _______
<S> <C> <C>
Operating activities:
Net income $ 3,511 $ 3,673
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,608 3,406
Deferred Federal income tax 1,729
Net loss (gain) on sales and retirements
of property and equipment 13 (166)
Increase (decrease) from changes in:
Prepaid expenses and other current assets 191 81
Other non-current assets 45 (106)
Accounts payable (12) (194)
Other current liabilities 275 (693)
Deferred rent (277) (247)
Other liabilities 22
_______ _______
Net cash provided by operating activities 6,354 7,505
_______ _______
Investing activities:
Net proceeds from location operators 130 122
Proceeds from sales of subsidiary and property 1,465 500
Purchases of property and equipment (1,390) (2,405)
Increase in lease acquisition costs and other
intangible assets (133) (164)
Decrease in lease and other security deposits 40
_______ _______
Net cash provided by (used in) investing
activities 72 (1,907)
_______ _______
Financing activities:
Repayments of long-term debt (630)
Proceeds from issuance of common stock 193 23
Repurchases of common stock (837)
Dividends paid (1,496) (1,482)
_______ _______
Net cash used in financing activities (2,140) (2,089)
_______ _______
Net increase in cash and cash equivalents 4,286 3,509
Cash and cash equivalents at beginning of period 39,024 32,916
_______ _______
Cash and cash equivalents at end of period $43,310 $36,425
======= =======
Supplemental disclosures of cash flow data:
Cash paid during the period for:
Interest $ - $ 22
Federal income tax $ 800 $ -
</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 December 31, 1996, and the results of its operations
for the three and six months ended December 31, 1996 and
1995 and its cash flows for the six months ended December 31,
1996 and 1995. 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
six months ended December 31, 1996 and 1995 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 proforma 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.
<PAGE>
Note 2 - Earnings per share:
Earnings per share for the three and six months ended December
31, 1996 and 1995 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 six months ended December 31, 1996, 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 85,135 and 140,601 shares of its common stock
at the market price on the date of purchase for a total cost of
approximately $837,000 and $1,389,000, or an average of $9.83
and $9.88 per share during the six months ended December 31,
1996 and one month ended January 31, 1997, respectively.
Purchases during the six months ended December 31, 1996 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 are directors and indirect
beneficial owners of an aggregate of more than 51% of the common
stock of such insurance company.
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.
<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 six months ended December 31,
1996 (the "1996 six 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 December 31, 1996
approximated $43.3 million.
Net cash provided by operating activities in the 1996 six months was
$6.4 million. Net cash provided by investing activities in the 1996 six
months was approximately $.1 million which included cash received of
approximately $1.6 million and cash used of approximately $1.5 million.
The $1.6 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 $1.5 million of cash used was primarily for the purchase of property
and equipment.
Net cash used in financing activities in the 1996 six months was
approximately $2.1 million which resulted from the payments of dividends
and repurchases of common stock of approximately $1.5 million and $.8
million, respectively, net of approximately $.2 million of proceeds from
the issuance of common stock upon the exercise of stock options.
Liquidity:
At December 31, 1996, Jackpot had cash and cash equivalents of
approximately $43.3 million, an increase of approximately $4.3 million
from June 30, 1996. Jackpot's working capital and current ratio also
increased to approximately $42.8 million and 12.7 to 1, respectively,
at December 31, 1996, 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 $3.7 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.
<PAGE>
Results of Operations
______________________
Revenues:
Total revenues in the three months ended December 31, 1996 (the "1996
three months") increased approximately $.2 million (from $22.4 million in
the three months ended December 31, 1995 (the "1995 three months") to $22.6
million in the 1996 three months), while total revenues in the 1996 six months
decreased approximately $.7 million (from $45.2 million in the six months
ended December 31, 1995 (the "1995 six months") to $44.5 million in the 1996
six months). The increase in total revenues of $.2 million in the 1996
three months was the net result of an increase of $1.3 million (from $20.5
million in the 1995 three months to $21.8 million in the 1996 three months)
in gaming machine route operations ("route operations") revenues and a
decrease of $1.1 million (from $1.9 million in the 1995 three months to $.8
million in the 1996 three months) in casino operations revenues. The
decrease in total revenues of $.7 million in the 1996 six months was the
net result of an increase of $1.8 million (from $41.1 million in the 1995
six months to $42.9 million in the 1996 six months) in route operations
revenues and a decrease of $2.5 million (from $4.1 million in the 1995 six
months to $1.6 million in the 1996 six months) in casino operations revenues.
The increases in route operations revenues in the 1996 three months and
1996 six months of $1.3 million and $1.8 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 $1.2 million and $2.4 million and
existing locations generated additional revenues of $1.0 million and $1.3
million in the 1996 three months and 1996 six months, respectively.
Terminated locations had generated revenues of $.9 million and $1.9 million
in the 1995 three months and 1995 six months, respectively.
<PAGE>
The amount of route operations revenues attributable to fixed payment
leases and revenue sharing contracts for the three and six months ended
December 31, 1996 and 1995 are summarized below (dollars in thousands):
<TABLE>
Three Months Ended December 31,
___________________________________________
1996 1995
_____________________ __________________
Percent Percent
of route of route
operations operations
Amount revenues Amount revenues
_______ __________ _______ __________
<S> <C> <C> <C> <C>
Route operations:
Fixed payment leases $14,514 66.7% $13,072 63.9%
Revenue sharing contracts 7,252 33.3 7,376 36.1
_______ ______ _______ _____
Totals $21,766 100.0% $20,448 100.0%
======= ====== ======= =====
Six Months Ended December 31,
___________________________________________
1996 1995
_____________________ __________________
Percent Percent
of route of route
operations operations
Amount revenues Amount revenues
_______ __________ _______ __________
Route operations:
Fixed payment leases $28,318 66.0% $25,912 63.1%
Revenue sharing contracts 14,615 34.0 15,143 36.9
_______ _____ _______ _____
Totals $42,933 100.0% $41,055 100.0%
======= ===== ======= =====
</TABLE>
The decreases in casino operations revenues in the 1996 three months and
1996 six 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 1995 three months and 1995 six
months included revenues of $1.2 million and $2.4 million, respectively, which
were generated at these two locations.
Costs and expenses:
Route operations expenses in the 1996 three months and 1996 six months
increased approximately $1.6 million (from $15.6 million in the 1995 three
months to $17.2 million in the 1996 three months) and $2.8 million (from
$31.4 million in the 1995 six months to $34.2 million in the 1996 six months)
and, as a percentage of route operations revenues, increased to 78.9% and
79.6% in the 1996 three months and 1996 six months, respectively, from 76.1%
and 76.3% in the 1995 three months and 1995 six months, respectively. The
increases of $1.6 million and $2.8 million over the respective 1995 periods
were attributable to increases of $.8 million and $1.6 million, respectively,
in location rent, increases of $.1 million and $.2 million, respectively, in
payroll costs, increases of $.3 million and $.5 million, respectively, in
workers' compensation and group health costs and increases of $.4 million
and $.5 million respectively, in other route operations expenses. Route
operations expenses increased as a percentage of route operations revenues
in the respective 1996 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.
With respect to location rent, which is the single largest route operations
expense, agreements with three of Jackpot's largest six retail chain store
customers expire on June 30, 1997. The loss or nonrenewal of any one of these
agreements could have a material adverse effect on the Company's future results
of operations. While the Company is actively seeking to renew these
agreements, there is no assurance that the Company will be able to renew
or extend such agreements or that these agreements will be renewed upon
terms that Jackpot will find acceptable. If such agreements are renewed,
management anticipates that lease costs may increase over the existing
agreements. If anticipated future lease costs are not offset by increases
in revenues, or by reductions in operating costs, the renewal of these
agreements could have an adverse effect on the Company's future
results of operations. 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.
Casino operations expenses in the 1996 three months and 1996 six months
decreased approximately $1.0 million (from $1.7 million in the 1995 three
months to $.7 million in the 1996 three months) and approximately $2.0 million
(from $3.5 million in the 1995 six months to $1.5 million in the 1996 six
months). With respect to casino operations expenses, the 1995 three months
and 1995 six months included approximately $1.0 million and $2.1 million of
costs and expenses incurred by the Nugget and the casino operations at the
Debbie Reynolds' Hotel and Casino.
Amortization expense in the 1996 three months and 1996 six months
decreased approximately $.1 million (from $.5 million in the 1995 three
months to $.4 million in the 1996 three months) and approximately $.2 million
(from $1.1 million in the 1995 six months to $.9 million in the 1996 six
months). The decrease in amortization expense in the respective 1996 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 1996 three months and 1996 six 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 1996 three months and 1996 six months
decreased approximately $.2 million (from $1.1 million in the 1995 three
months to $.9 million in the 1996 three months) and $.6 million (from $2.3
million in the 1995 six months to $1.7 million in the 1996 six months). The
decrease in depreciation expense in the respective 1996 periods 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 1996 three months remained
constant at approximately $1.0 million compared to the 1995 three months,
and in the 1996 six months decreased approximately $.2 million (from $2.2
million in the 1995 six months to $2.0 million in the 1996 six months).
The decrease in general and administrative expenses in the 1996 six months
was due primarily to decreases in payroll and other compensation related
costs.
Other:
The effective tax rate in the 1996 three months and 1996 six months was
31%, which was slightly lower than the 32% rate in the 1995 three months
and 1995 six months primarily because of the increase in tax benefits from
tax-exempt interest income.
General:
Operating income in the 1996 three months remained constant at
approximately $2.4 million compared to the 1995 three months, and decreased
approximately $.4 million (from $4.7 million in the 1995 six months to $4.3
million in the 1996 six months). The decrease in operating income in the
1996 six months resulted primarily from decreases in the operating margin
of the route operations and casino operations of $.9 million and $.5 million,
respectively, net of an overall decrease in amortization, depreciation and
general and administrative expenses of approximately $1.0 million. The
decrease of $.9 million (from $9.7 million in the 1995 six months to $8.8
million in the 1996 six 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 $.6 million in the 1995 six
months to $.1 million in the 1996 six 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 1996 three months remained constant at $1.9 million
compared to the 1995 three months, and decreased approximately $.2 million
(from $3.7 million in the 1995 six months to $3.5 million in the 1996 six
months) due to the results of operations described above. Earnings per share
in the 1996 three months and 1996 six months were $.21 and $.38 per share,
respectively, compared to earnings per share in the 1995 three months and
1995 six months of $.20 and $.39, 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 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 largest six retail chain store customers, 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 4. Submission of Matters to a Vote of Stockholders
(a) Jackpot's 1996 Annual Meeting of Stockholders was held on
December 12, 1996.
(b) Proxies were solicited by Jackpot's management without
opposition and all nominees were elected to hold office
until the next annual meeting as described in the Proxy
Statement dated October 25, 1996.
(c) No other matters were voted upon except for the proposal to
ratify the appointment of Jackpot's independent auditors.
The stockholders voted 8,433,096 shares "FOR", 81,877 shares
"AGAINST" and 31,733 shares "ABSTAINING" to approve the
appointment of Deloitte & Touche LLP as Jackpot's independent
auditors for the fiscal year ending June 30, 1997.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 11.1 - Computation of Earnings Per Common Share for
the three and six months ended December 31, 1996 and 1995.
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 December 31, 1996.
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: February 13, 1997 <PAGE>
EXHIBIT 11.1
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
THREE AND SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
(Dollars and shares in thousands, except per share data)
<TABLE>
Three Months Ended Six Months Ended
December 31, December 31,
__________________ ________________
1996 1995 1996 1995
______ _______ ______ ______
<S> <C> <C> <C> <C>
Primary:
Earnings:
Net income $1,938 $ 1,871 $3,511 $3,673
====== ======= ====== ======
Shares:
Weighted average number of common
shares outstanding (A) 9,333 9,303 9,344 9,302
====== ======= ====== ======
Primary earnings per share $ .21 $ .20 $ .38 $ .39
====== ======= ====== ======
Fully diluted (B):
Earnings:
Net income $1,938 $ 1,871 $3,511 $3,673
Add after-tax interest, net (C) 42 350 86 713
______ _______ ______ ______
Net income, as adjusted $1,980 $ 2,221 $3,597 $4,386
====== ======= ====== ======
Shares:
Weighted average number of common
shares outstanding 9,333 9,303 9,344 9,302
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 247 1,974 244 1,978
______ _______ ______ ______
Weighted average number of common
shares and common share
equivalents outstanding, as
adjusted 9,580 11,277 9,588 11,280
====== ======= ====== =======
Fully diluted earnings per share $ .21 $ .20 $ .38 $ .39
</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 - December 31, 1996 and June 30, 1996 and its
Consolidated Statements of Income - three and six months ended
December 31, 1996 and 1995 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 43,310
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 46,459
<PP&E> 34,181
<DEPRECIATION> 21,294
<TOTAL-ASSETS> 71,415
<CURRENT-LIABILITIES> 3,660
<BONDS> 0
0
0
<COMMON> 97
<OTHER-SE> 64,769
<TOTAL-LIABILITY-AND-EQUITY> 71,415
<SALES> 0
<TOTAL-REVENUES> 44,515
<CGS> 0
<TOTAL-COSTS> 35,626
<OTHER-EXPENSES> 2,318
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,089
<INCOME-TAX> 1,578
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,511
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
</TABLE>
