UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to ___________________
Comission file no. 1-9728
JACKPOT ENTERPRISES, INC.
________________________________________________________________________
(Exact name of registrant as specified in its charter)
NEVADA 88-0169922
_______________________________ __________________________________
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1110 Palms Airport Drive, Las Vegas, Nevada 89119
____________________________________________ ________
(Address of principal executive offices) (Zip Code)
702-263-5555
__________________________________________________
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports),and (2) has been subject to
such filing requirements for the past 90 days.
Yes x No
___ ___
There were 9,082,035 shares of the registrant's common stock outstanding as
of November 7, 1997.
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 1997 and June 30, 1997
Condensed Consolidated Statements of Income -
Three Months Ended September 30, 1997 and 1996
Condensed Consolidated Statement of Stockholders'
Equity - Three Months Ended September 30, 1997
Condensed Consolidated Statements of Cash Flows -
Three Months Ended September 30, 1997 and 1996
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
September 30, June 30,
ASSETS 1997 1997
______ ____________ ________
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 49,712 $ 47,945
Prepaid expenses 1,384 1,438
Other current assets 1,899 1,728
________ ________
Total current assets 52,995 51,111
________ ________
Property and equipment, at cost:
Land and buildings 1,535 1,535
Gaming equipment 29,072 28,202
Other equipment 4,651 4,595
Leasehold improvements 339 339
________ ________
35,597 34,671
Less accumulated depreciation (21,805) (21,582)
________ ________
13,792 13,089
Lease acquisition costs and other
intangible assets, net of
accumulated amortization of
$4,028 and $6,198 2,781 3,596
Goodwill, net of accumulated
amortization of $2,588 and $2,547 4,033 4,074
Lease and other security deposits 3,044 2,959
Other non-current assets 380 438
________ ________
Total assets $ 77,025 $ 75,267
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.<PAGE>
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(Concluded)
<TABLE>
September 30, June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1997
____________________________________ ____________ ________
<S> <C> <C>
Current liabilities:
Accounts payable $ 720 $ 375
Other current liabilities 4,379 4,407
_______ _______
Total current liabilities 5,099 4,782
Deferred rent 2,215 2,510
Deferred income tax 797 633
Other liabilities 61 61
_______ _______
Total liabilities 8,172 7,986
_______ _______
Commitments and contingencies
Stockholders' equity:
Preferred stock - authorized
1,000,000 shares of $1 par value;
none issued
Common stock - authorized
30,000,000 shares of $.01 par
value; 9,823,993 shares issued 98 98
Additional paid-in capital 66,033 66,033
Retained earnings 10,825 9,253
Less 741,958 shares of common stock
in treasury, at cost (8,103) (8,103)
_______ _______
Total stockholders' equity 68,853 67,281
_______ _______
Total liabilities and
stockholders' equity $77,025 $75,267
======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.<PAGE>
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Dollars in thousands, except per share data)
<TABLE>
1997 1996
_______ _______
<S> <C> <C>
Revenues:
Route operations $21,918 $21,167
Casino operations 749 788
_______ _______
Totals 22,667 21,955
_______ _______
Costs and expenses:
Route operations 18,291 16,977
Casino operations 727 753
Amortization 276 431
Depreciation 868 888
General and administrative 925 983
_______ _______
Totals 21,087 20,032
_______ _______
Operating income 1,580 1,923
_______ _______
Other income:
Interest and other income 573 356
_______ _______
Totals 573 356
_______ _______
Income before income tax 2,153 2,279
_______ _______
Provision for Federal income tax:
Current 417 706
Deferred 164
_______ _______
Totals 581 706
_______ _______
Net income $ 1,572 $ 1,573
======= =======
Earnings per common share $ .17 $ .17
======= =======
Cash dividends per share of common stock $ - $ .08
======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 1997
(Dollars and shares in thousands)
<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,
1997 9,824 $98 $66,033 $ 9,253 (742) $(8,103) $67,281
Net
income 1,572 1,572
_____ ___ _______ _______ ____ _______ _______
Balance
September
30, 1997 9,824 $98 $66,033 $10,825 (742) $(8,103) $68,853
===== === ======= ======= ==== ======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.<PAGE>
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Dollars in thousands)
<TABLE>
1997 1996
_______ _______
<S> <C> <C>
Operating activities:
Net income $ 1,572 $ 1,573
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,144 1,319
Deferred Federal income tax 164
Increase (decrease) from changes in:
Prepaid expenses and other current assets (117) 159
Other non-current assets (105) 59
Accounts payable 345 (17)
Other current liabilities (28) 253
Deferred rent 306 (139)
_______ _______
Net cash provided by operating activities 3,281 3,207
_______ _______
Investing activities:
Net proceeds from location operators 73 45
Proceeds from sales of subsidiary and property 4 1,270
Purchases of property and equipment (1,570) (693)
Increase in lease acquisition costs and other
intangible assets (21) (60)
_______ _______
Net cash (used in) provided by investing
activities (1,514) 562
_______ _______
Financing activities:
Proceeds from issuance of common stock 184
Dividends paid (748)
_______ _______
Net cash used in financing activities (564)
_______ _______
Net increase in cash and cash equivalents 1,767 3,205
Cash and cash equivalents at beginning of period 47,945 39,024
_______ _______
Cash and cash equivalents at end of period $49,712 $42,229
======= =======
Supplemental disclosures of cash flow data:
Cash paid during the period for:
Federal income tax $ 400 $ -
</TABLE>
See Notes to Condensed Consolidated Financial Statements.<PAGE>
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - General:
The accompanying unaudited condensed consolidated financial
statements included herein have been prepared by Jackpot
pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and
regulations, although management believes that the disclosures
are adequate to make the information presented not misleading.
In the opinion of management, the accompanying unaudited
condensed consolidated financial statements reflect all
adjustments, consisting of normal recurring accruals,
necessary to present fairly Jackpot's financial position as of
September 30, 1997 and the results of its operations and cash
flows for the three months ended September 30, 1997 and 1996.
The earnings for the three months ended September 30, 1997 and
1996 are not necessarily indicative of results for a full
year. Information included in the condensed consolidated
balance sheet as of June 30, 1997 has been derived from
Jackpot's Annual Report to the Securities and Exchange
Commission on Form 10-K for the fiscal year ended
June 30, 1997 (the "1997 Form 10-K"). These unaudited
condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and
disclosures included in the 1997 Form 10-K.
In February 1997, the Financial Accounting Standards Board
(the "FASB") issued Statement of Financial Accounting
Standards No. 128, "Earnings per Share"("SFAS 128"), which is
effective for periods, including interim periods, ending after
December 15, 1997. Earlier adoption of the statement is not
permitted. SFAS 128 establishes standards for computing and
presenting earnings per share ("EPS"), including the
replacement of the presentation of primary EPS with the
presentation of basic EPS, as defined. Upon adoption of SFAS
128, all prior-period EPS data presented shall be restated to
conform with the provisions of the statement. As required by
SFAS 128, Jackpot will adopt this statement for the three
month period ending December 31, 1997. Management believes
that the implementation of SFAS 128 will not have a
significant impact on EPS.
In February 1997, the FASB issued Statement of Financial
Accounting Standards No. 129, "Disclosure of Information about
Capital Structure" ("SFAS 129"), which is effective for
periods ending after December 15, 1997. SFAS 129 establishes
standards for disclosing information about an entity's capital
structure. Management intends to comply with the disclosure
requirements of this statement.
In June 1997, the FASB issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"), which is effective for fiscal years beginning
after December 15, 1997. SFAS 130 requires companies
to classify items of other comprehensive income by their
nature in a financial statement and display the accumulated
balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section
of a statement of financial position. Management does not
believe this statement will have a material impact on the
consolidated financial statements.
In June 1997, the FASB issued Statement of Financial
Accounting Standards No. 131, "Disclosure About Segments of an
Enterprise and Related Information"("SFAS 131"), which is
effective for fiscal years beginning after December 15, 1997.
SFAS 131 establishes additional standards for segment
reporting in the financial statements. Management has not
determined the extent of the disclosure required by SFAS 131.
Note 2 - Earnings per share:
Earnings per share for the three months ended September 30,
1997 and 1996 are computed by dividing net income by the
weighted average number of common shares outstanding. Stock
options have been excluded from the computations because they
had no effect on earnings per share.
Note 3 - Stockholders' equity:
The 1992 Incentive and Non-qualified Stock Option Plan:
On September 30, 1997, the exercise price of the June 30,
1997 grant of nonqualified stock options to purchase an
aggregate of 110,000 shares of common stock (27,500 each to
four directors) was vested at $11.50 per share, the fair
market value of the stock on that date, pursuant to the terms
of the 1992 Incentive and Non-qualified Stock Option Plan (the
"1992 Plan"). See Note 5 of Notes to Consolidated Financial
Statements in the 1997 Form 10-K for further information
regarding the 1992 Plan and option grants.
Note 4 - Commitments and contingencies:
Legal matter:
On August 17, 1992, Phar-Mor, Inc. ("Phar-Mor"), a large chain
store, announced that it had filed for protection under
Chapter 11 of the U.S. Bankruptcy Code. Jackpot had operated
51 gaming machines at three Phar-Mor store locations in Nevada
under a license agreement dated February 10, 1990 (the
"Original Agreement"). Under the Original Agreement, Jackpot
made certain advances to Phar-Mor. Thereafter, Jackpot and
Phar-Mor, subject to bankruptcy court approval, entered into
an amended license agreement, dated January 1, 1993 (the
"Amended Agreement"). If the Amended Agreement were to become
final, Jackpot would receive credits for certain prepaid sums
but would be required to pay certain additional obligations.
On May 12, 1995, Phar-Mor announced the closing of 41 stores,
including its three stores in Nevada. On May 24, 1995 Jackpot
notified Phar-Mor that it was in default under (i) the
Original Agreement, and (ii) the Amended Agreement to the
extent applicable. Jackpot has taken the position that the
Amended Agreement has not become operative and has not
replaced the Original Agreement. Jackpot has claimed monetary
damages in excess of several millions of dollars resulting
from Phar-Mor's alleged default, consisting of, but not
limited to certain refundable monies, prepaid license fees,
lost profits and other consequential and incidental damages.
On July 25, 1995, Phar-Mor notified Jackpot that it disagreed
with Jackpot's position that Phar-Mor has defaulted under the
terms of either the Original Agreement or the Amended
Agreement. Phar-Mor maintains that the Amended Agreement is
the operative agreement and is seeking to enforce its rights
thereunder. On or about March 7, 1996, Phar-Mor filed a
lawsuit against Jackpot in the United States Bankruptcy Court
for the Northern District of Ohio, claiming it is owed
approximately $1 million under the Amended Agreement. Jackpot
has filed an answer and counterclaim reflecting its position
that under the Original Agreement Jackpot is owed in excess of
$3 million. All discovery has been completed and the parties
have filed cross motions for summary judgment. The Court has
not yet ruled upon such motions. Jackpot, based upon discussions
with counsel, does not believe it is probable that Phar-Mor will
prevail in this matter. If Phar-Mor were to prevail and the
Amended Agreement is determined to be the operative agreement,
Jackpot could be liable for certain obligations under the Amended
Agreement up to approximately $1 million. If Jackpot were to
prevail, it would become an unsecured creditor with respect to
its claims against Phar-Mor which exceed $3 million.
<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 three months ended
September 30, 1997 (the "1997 three months"), consisted of the cash flows
from operating activities and its available cash and cash equivalents
which, at June 30, 1997, was $47.9 million and at September 30, 1997 was
$49.7 million. Net cash provided by operating activities for the 1997
three months was $3.3 million.
Net cash used in investing activities for the 1997 three months
increased $2.1 million, from $.6 million provided by investing activities
for the three months ended September 30, 1996 (the "1996 three months") to
$1.5 million used in investing activities for the 1997 three months. The
1996 three months includes the receipt of $1.3 million from the sale of
Jackpot's interest in a casino subsidiary. Cash used in investing
activities for purchases of property and equipment increased $.9
million, from $.7 million for the 1996 three months to $1.6 million for the
1997 three months. Primarily, as a result of the transactions described
above, net cash used in investing activities increased by $2.1 million.
Liquidity:
At September 30, 1997, Jackpot had cash and cash equivalents of $49.7
million, an increase of $1.8 million from June 30, 1997. Jackpot's working
capital increased to $47.9 million at September 30, 1997, from $46.3
million at June 30, 1997 primarily as a result of the activities described
above.
On October 29, 1996, Jackpot's Board of Directors authorized Jackpot's
management to repurchase up to 500,000 shares of its common stock, from
time to time, at prevailing market prices. Since such authorization,
Jackpot has repurchased 283,771 shares of common stock at a cost of
approximately $2.8 million.
On May 24, 1995, Jackpot notified Phar-Mor, Inc. ("Phar-Mor"), a large
chain store, that it was in default under the terms of certain agreements.
On July 25, 1995, Phar-Mor notified Jackpot that it disagreed with
Jackpot's position and asserted that Jackpot was in default under the terms
of an amended agreement. On or about March 7, 1996, Phar-Mor filed a
lawsuit against Jackpot in the United States Bankruptcy Court for the
Northern District of Ohio, claiming it is owed approximately $1 million
under the amended agreement. Jackpot has filed an answer and counterclaim
reflecting its position that under an original agreement Jackpot is owed in
excess of $3 million. All discovery has been completed and the parties
have filed cross motions for summary judgment. The Court has not yet ruled
upon such motions. Jackpot, based upon discussions with counsel, does not
believe it is probable that Phar-Mor will prevail in this matter. If Phar-
Mor were to prevail, Jackpot could be liable for certain obligations up to
$1 million. If Jackpot were to prevail, it would become an unsecured
creditor of Phar-Mor in an amount in excess of $3 million. See Note 7 of
Notes to Consolidated Financial Statements in the 1997 Form 10-K for
further information regarding this matter.
Management believes Jackpot's working capital and cash provided by
operations will be sufficient to enable Jackpot to meet its planned
capital expenditures and other cash requirements for the remainder of the
fiscal year ending June 30, 1998. With respect to planned capital
expenditures, management anticipates Jackpot will purchase approximately
$6.9 million of property and equipment, exclusive of business
acquisitions, if any, in the remainder of fiscal 1998 to be used in
existing and currently planned new locations.
Jackpot continues to selectively explore expansion opportunities,
both in and outside Nevada, and various potential acquisitions, both
gaming and nongaming. Management believes working capital and cash
provided by operations will be sufficient to enable Jackpot to pursue
expansion opportunities; however, Jackpot may seek additional debt or
equity financing to facilitate expansion opportunities and potential
acquisitions.
Recently Issued Accounting Standards:
In February 1997, the Financial Accounting Standards Board (the
"FASB") issued Statement of Financial Accounting Standards No.
128,"Earnings per Share" ("SFAS 128"), which is effective for
periods, including interim periods, ending after December 15, 1997.
Earlier adoption of the statement is not permitted. SFAS 128 establishes
standards for computing and presenting earnings per share ("EPS"),
including the replacement of the presentation of primary EPS with the
presentation of basic EPS, as defined. Upon adoption of SFAS 128, all
prior-period EPS data presented shall be restated to conform with the
provisions of the statement. As required by SFAS 128, Jackpot will adopt
this statement for the three month period ending December 31, 1997.
Management believes that the implementation of SFAS 128 will not have a
significant impact on EPS.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129,"Disclosure of Information about Capital Structure"
("SFAS 129"), which is effective for periods ending after December 15,
1997. SFAS 129 establishes standards for disclosing information about
an entity's capital structure. Management intends to comply with the
disclosure requirements of this statement.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which is
effective for fiscal years beginning after December 15, 1997. SFAS 130
requires companies to classify items of other comprehensive income by
their nature in a financial statement and display the accumulated balance
of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement
of financial position. Management does not believe this statement will
have a material impact on the consolidated financial statements.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosure About Segments of an Enterprise and Related
Information" ("SFAS 131"), which is effective for fiscal years beginning
after December 15, 1997. SFAS 131 establishes additional standards for
segment reporting in the financial statements. Management has not determined
the extent of the disclosure required by SFAS 131.
Results of Operations
_____________________
Revenues:
Total revenues for the 1997 three months increased $.7 million, from
$22.0 million for the 1996 three months to $22.7 million for the 1997 three
months. The increase in total revenues was attributable to an increase of
$.7 million (from $21.2 million for the 1996 three months to $21.9 million
for the 1997 three months) in gaming machine route operations ("route
operations") revenues.
The increase in route operations revenues of $.7 million resulted
from a combination of additional revenues generated from new and existing
locations, net of lost revenues from terminated locations. New locations
generated revenues of $1.9 million, existing locations generated
additional revenues of $1.2 million and terminated locations had generated
revenues of $2.4 million for the 1996 three months. The loss of revenues
generated at terminated locations was primarily due to the expiration of
Jackpot's right to operate at the locations of Warehouse Markets, Inc., a
significant chain store customer, on June 30, 1997. Despite a long-term
relationship with such customer, Jackpot was not willing to agree with the
terms sought for a contract extension, which management believed were
uneconomic. The agreement involved the operation of approximately 272
gaming machines in 16 locations. In fiscal 1997, Jackpot generated
approximately 6% of its total revenues and a significant amount of
operating income from operations at such customer's locations. For
additional information regarding Jackpot's operations, see Item 1 -
Business - Gaming Machine Route Operations in the 1997 Form 10-K.
Route operations revenues attributable to fixed payment leases and
revenue sharing contracts for the 1997 and 1996 three months are
summarized below (dollars in thousands):
<TABLE>
1997 1996
___________________ __________________
Percent Percent
of route of route
operations operations
Amount revenues Amount revenues
_______ __________ _______ __________
<S> <C> <C> <C> <C>
Route operations:
Fixed payment leases $16,444 75.0% $13,804 65.2%
Revenue sharing contracts 5,474 25.0 7,363 34.8
_______ _____ _______ _____
Totals $21,918 100.0% $21,167 100.0%
======= ===== ======= =====
</TABLE>
The decrease in route operations revenues attributable to revenue
sharing contracts of $1.9 million (from $7.4 million for the 1996 three
months to $5.5 million for the 1997 three months) was principally due to
the loss of the significant customer previously discussed.
Costs and expenses:
Route operations expenses for the 1997 three months increased $1.3
million (from $17.0 million for the 1996 three months to $18.3 million for
the 1997 three months) and, as a percentage of route operations revenues,
increased to 83.5% for the 1997 three months from 80.2% for the 1996 three
months. Such increases were principally attributable to an increase in
location rent. With respect to location rent, which is the single largest
route operations expense, Jackpot entered into agreements for long-term
extensions with four of its largest retail chain store customers during
1997. Such agreements, two of which were not due to expire on June 30,
1997, became effective July 1, 1997. A very competitive pricing
environment caused Jackpot to offer significant increases in location rent
over the existing agreements.
The increase in route operations expenses of $1.3 million primarily
resulted from a combination of an increase of $1.7 million in location
rent for locations of existing chain store customers, which was related to
the four chain store renewals, an increase of $.7 million in location rent
for new locations of existing chain store customers, net of a decrease of
$.9 million in location rent for lost chain store customers and a decrease
of $.2 million in location rent associated with other revenue sharing
contracts. The total for all other route operations costs and expenses
for the 1997 three months approximated the aggregate amount for the 1996
three months. For a further description of the Company's lease and
license agreements, see Item 1 - Business - Gaming Machine Route
Operations and Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations - Overview in the 1997 Form 10-K.
Amortization expense for the 1997 three months decreased
approximately $.1 million, from $.4 million for the 1996 three months to
$.3 million for the 1997 three months. The decrease in amortization
expense for the 1997 three months was attributable to reductions in
amortization expense related to certain lease acquisition costs.
Depreciation expense for the 1997 three months, compared to the 1996 three
months, remained constant at $.9 million.
General and administrative expense for the 1997 three months
decreased approximately $.1 million, from $1.0 million for the 1996 three
months to $.9 million for the 1997 three months.
Other income:
Other income for the 1997 three months increased approximately
$.2 million (from $.4 million for the 1996 three months to $.6 million for
the 1997 three months) primarily due to the increase in interest income
earned from cash equivalents and to the receipt of approximately $.1
million for liquidated damages from the potential purchaser of Jackpot's
remaining two casinos. Jackpot received such amount as a result of the
potential purchaser's withdrawal of his gaming application with the Nevada
Gaming Authorities.
Other:
The effective tax rate for the 1997 three months was 27%, which was
lower than the 31% rate for the 1996 three months, primarily because of
the increase in tax benefits from tax-exempt interest income.
General:
Operating income for the 1997 three months decreased $.3 million,
from $1.9 million for the 1996 three months to $1.6 million for the 1997
three months. The decrease in operating income for the 1997 three months
resulted primarily from a decrease in the route operations operating
margin of $.6 million, net of an overall decrease in amortization,
depreciation and general and administrative expenses of $.3 million. The
decrease in the route operations operating margin of $.6 million (from
$4.2 million for the 1996 three months to $3.6 million for the 1997 three
months) was principally due to the increase in location rent expense
for existing locations as previously described.
While net income and earnings per share for the 1997 three months,
compared to the 1996 three months, remained constant at $1.6 million and
$.17, respectively, due to the factors described above, the Company's
results of operations for the remainder of fiscal 1998 will continue to be
adversely affected compared to the prior year periods due to the intensely
competitive market conditions prevailing for gaming machine route
operators, the loss of the significant chain store customer described
above and the above referenced increases in location rent.
However, management believes that the following may lessen the
adverse effects described above: (i) increased revenues at existing
locations as a result of the maturing of several recently opened
new chain store locations, (ii) additional revenues from new locations
scheduled to be opened by Jackpot's largest chain store customers, and
(iii) increased revenues at existing locations due to capital improvements
or replacements of gaming machines. The Company experienced positive
results from (i) and (iii) during the 1997 three months. While management
believes that these events will occur, they are, in part, based upon factors
that are outside the Company's control. Accordingly, no assurance can be
given that such benefits will occur, or occur at sufficient levels to lessen
the adverse effects described above.
Forward-looking statements:
Certain information included in this Form 10-Q and other materials
filed or to be filed by the Company with the Securities and Exchange
Commission contains statements that may be considered forward-looking. In
addition, from time to time, the Company may release or publish
forward-looking statements relating to such matters as anticipated
financial performance, business prospects, technological developments and
similar matters. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. In order to comply
with the terms of the safe harbor, the Company notes that a variety of
factors could cause the Company's actual results and experience to differ
materially from the anticipated results or other expectations expressed in
the Company's forward-looking statements. The risks and uncertainties
that may affect the operations, performance, development and results of
the Company's business include, but are not limited to, competitive
pressures, the loss or nonrenewal of any of Jackpot's significant
contracts, conditioning or suspension of any gaming license, adverse
results of significant litigation matters, possible future financial
difficulties of a significant customer and the continued growth of the
gaming industry and population in Nevada. Readers are cautioned not to
place undue reliance on any forward-looking statements, which speak only
as of the date thereof. The Company assumes no obligation to update or
supplement forward-looking statements as a result of new circumstances or
subsequent events.
<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 months ended September 30, 1997 and 1996.
Exhibit 27.1 - Financial Data Schedule (EDGAR version
only).
(b) Reports on Form 8-K - No Form 8-K was filed for the
three months ended September 30, 1997.
Signature
_________
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JACKPOT ENTERPRISES, INC.
_________________________
(Registrant)
By: /s/ Bob Torkar
_________________________
BOB TORKAR
Senior Vice President - Finance,
Treasurer and Chief Accounting
Officer
Date: November 12, 1997
EXHIBIT 11.1
JACKPOT ENTERPRISES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Dollars and shares in thousands, except per share data)
<TABLE>
1997 1996
______ ______
<S> <C> <C>
Primary:
Earnings:
Net income $1,572 $1,573
====== ======
Shares:
Weighted average number of common shares outstanding (A) 9,082 9,355
====== ======
Primary earnings per share $ .17 $ .17
====== ======
Fully diluted (B):
Earnings:
Net income $1,572 $1,573
Add after-tax interest (C) 5 39
______ ______
Net income, as adjusted $1,577 $1,612
====== ======
Shares:
Weighted average number of common shares outstanding 9,082 9,355
Common shares issuable upon exercise of stock options, net
of common shares assumed to be repurchased from the
proceeds using the greater of the average market price
for the period or the period-end price 182 226
______ ______
Weighted average number of common shares and common
share equivalents outstanding 9,264 9,581
====== ======
Fully diluted earnings per share $ .17 $ .17
====== ======
</TABLE>
___________________________________
(A) Common shares issuable upon exercise of stock options, net of common
shares assumed to be repurchased from the proceeds at the average market
price for the period have been excluded from the computations because they
had no effect on primary earnings per share.
(B) These calculations are submitted in accordance with Regulation S-K Item
601 (b) (ii) although not required by Footnote 2 to paragraph 14 of APB
Opinion No. 15 because they had no effect on earnings per share.
(C) Amounts represent an increase in interest income as a result of the
assumed increase in investments in U. S. government securities from the
application of the portion of the proceeds from the assumed exercise of
stock options which were not applied towards the repurchase of outstanding
common shares (equivalent to 20% of the common shares outstanding at the
end of the applicable period).
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Jackpot's
Consolidated Balance Sheets - September 30, 1997 and June 30, 1997 and its
Consolidated Statements of Income - three months ended September 30, 1997 and
1996 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 49,712
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 52,995
<PP&E> 35,597
<DEPRECIATION> 21,805
<TOTAL-ASSETS> 77,025
<CURRENT-LIABILITIES> 5,099
<BONDS> 0
0
0
<COMMON> 98
<OTHER-SE> 68,755
<TOTAL-LIABILITY-AND-EQUITY> 77,025
<SALES> 0
<TOTAL-REVENUES> 22,667
<CGS> 0
<TOTAL-COSTS> 19,018
<OTHER-EXPENSES> 998
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,153
<INCOME-TAX> 581
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,572
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
