<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 1995
-----------------------------------------------
Commission file number 1-8300
------
WMS INDUSTRIES INC.
------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 36-2814522
- -------------------------------------------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
3401 North California Ave., Chicago, IL 60618
- -------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (312) 961-1000
---------------------------
N/A
- -------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by X whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 24,124,300 shares of common
stock, $.50 par value, were outstanding at October 31, 1995 after deducting
56,312 shares held as treasury shares.
<PAGE>
WMS INDUSTRIES INC.
------------
INDEX
<TABLE>
<CAPTION>
PAGE NO
-------
<S> <C>
PART I. FINANCIAL INFORMATION:
- -------
ITEM 1. Financial Statements:
-------
Condensed Consolidated Statements of Income -
Three months ended September 30, 1995 and 1994........ 2
Condensed Consolidated Balance Sheets -
September 30, 1995 and June 30, 1995.................. 3-4
Condensed Consolidated Statements of Cash Flows -
Three months ended September 30, 1995 and 1994........ 5
Notes to Condensed Consolidated Financial Statements.. 6-7
ITEM 2. Management's Discussion and Analysis of Financial
------- Condition and Results of Operations.................. 8-10
PART II. OTHER INFORMATION:
- --------
ITEM 6.(A) Exhibits.............................................. 11
----------
SIGNATURE ...................................................... 12
</TABLE>
<PAGE>
WMS INDUSTRIES INC.
-------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
September 30,
------------------
1995 1994
------- -------
<S> <C> <C>
REVENUES:
Net sales - amusement games........................................ $84,240 $66,886
Management fees - Williams Hospitality............................. 2,144 2,266
Condado Plaza hotel/casino:
Casino............................................................ 4,927 6,320
Casino promotional allowances..................................... (1,820) (1,282)
Rooms............................................................. 5,166 4,976
Food and beverage................................................. 2,272 2,458
Other............................................................. 715 763
------- -------
11,260 13,235
------- -------
Total revenues...................................................... 97,644 82,387
COSTS AND EXPENSES:
Cost of sales (excluding depreciation) - amusement games.......... 64,021 53,507
Williams Hospitality operating expenses (excluding depreciation).. 1,067 1,260
Condado Plaza operating expenses (excluding depreciation):
Casino........................................................... 2,902 3,598
Rooms............................................................ 2,095 2,294
Food and beverage................................................ 2,283 2,419
Other............................................................ 1,252 1,903
------- -------
8,532 10,214
Selling and administrative......................................... 16,600 12,395
Depreciation and amortization...................................... 3,141 2,713
Equity in loss of nonconsolidated affiliates....................... 2,087 2,074
------- -------
Total costs and expenses............................................ 95,448 82,163
------- -------
Income from operations.............................................. 2,196 224
Interest and other income........................................... 1,508 1,350
Interest expense.................................................... (1,797) (1,912)
------- -------
Income (loss) before tax provision and minority interests........... 1,907 (338)
Provision for income taxes.......................................... (1,341) (465)
Minority interests in income........................................ (298) (270)
------- -------
Net income (loss)................................................... $ 268 $(1,073)
======= =======
Net income (loss) per share of common stock......................... $.01 $(.04)
======= =======
Shares used in calculating per share amounts........................ 24,109 24,098
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
WMS INDUSTRIES INC.
-------------
CONDENSED CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, June 30,
1995 1995
------------- --------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents........................ $ 66,370 $ 45,964
Short-term investments........................... - 47,863
Receivables, net of $3,161 and $1,914 allowance.. 88,500 57,919
Receivables from nonconsolidated affiliates...... 3,351 3,376
Inventories, at lower of cost (Fifo) or market:
Raw materials and work in progress.............. 37,256 36,667
Finished goods.................................. 21,545 5,221
-------- --------
58,801 41,888
Other current assets............................. 5,347 6,218
-------- --------
Total current assets............................ 222,369 203,228
Investments in, receivables and advances to
nonconsolidated affiliates........................ 24,542 26,320
Investment in marketable equity securities......... 24,875 23,187
Property, plant and equipment...................... 137,701 133,564
Less accumulated depreciation...................... (54,934) (52,370)
-------- --------
82,767 81,194
Excess of purchase cost over amount assigned to net
assets acquired, net of accumulated amortization
of $4,014 and $3,740.............................. 19,835 20,109
Other assets....................................... 34,299 32,028
-------- --------
$408,687 $386,066
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
WMS INDUSTRIES INC.
-------------
CONDENSED CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, June 30,
1995 1995
-------------- ---------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable............................................ $ 50,020 $ 33,922
Accrued compensation and related benefits................... 4,691 5,859
Income taxes payable........................................ 1,934 5,328
Deferred income taxes....................................... 1,129 1,819
Other accrued liabilities................................... 19,475 11,154
Notes payable............................................... 2,000 2,000
Current maturities of long-term debt........................ 3,368 3,813
-------- --------
Total current liabilities.................................. 82,617 63,895
Long-term debt, less current maturities....................... 83,266 84,428
Deferred income taxes......................................... 6,674 4,088
Other noncurrent liabilities.................................. 8,943 8,721
Minority interests............................................ 16,661 16,363
STOCKHOLDERS' EQUITY:
Preferred stock (5,000,000 shares authorized, none issued).. - -
Common stock (24,165,612 shares issued)..................... 12,083 12,083
Additional paid-in capital.................................. 81,851 81,851
Retained earnings........................................... 119,635 119,367
-------- --------
213,569 213,301
Treasury stock, at cost (56,312 shares)..................... (159) (159)
Unrealized loss on noncurrent marketable equity securities.. (2,884) (4,571)
-------- --------
Total stockholders' equity................................. 210,526 208,571
-------- --------
$408,687 $386,066
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
WMS INDUSTRIES INC.
------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
September 30,
-------------------
1995 1994
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................................. $ 268 ($1,073)
Adjustments to reconcile net income (loss)
to net cash used by operating activities:
Depreciation and amortization................... 3,141 2,713
Receivables provision........................... 1,790 1,047
Equity in loss of nonconsolidated affiliates... 2,087 2,074
Minority interests.............................. 298 270
Deferred income taxes........................... 1,896 (95)
Increase (decrease) resulting from changes
in operating assets and liabilities, net....... (31,180) (12,151)
-------- --------
Net cash used by operating activities............. (21,700) (7,215)
INVESTING ACTIVITIES:
Purchase of property, plant and equipment......... (4,199) (2,625)
Purchase of additional shares of subsidiaries..... - (3,925)
Net change in short term investments.............. 47,863 5,750
Other............................................. 49 -
-------- --------
Net cash provided (used) by investing activities.. 43,713 (800)
FINANCING ACTIVITIES:
Payment of long-term debt......................... (1,607) (711)
-------- --------
Net cash used by financing activities............. (1,607) (711)
-------- --------
Increase (decrease) in cash and cash equivalents.. 20,406 (8,726)
Cash and cash equivalents at beginning of period.. 45,964 34,239
-------- --------
Cash and cash equivalents at end of period........ $ 66,370 $ 25,513
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
WMS INDUSTRIES INC.
-------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information, the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Due to
the seasonality of the Company's businesses, operating results for the
three month period ended September 30, 1995 are not necessarily indicative
of the results that may be expected for the fiscal year ending June 30,
1996. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on
Form 10-K for the year ended June 30, 1995.
2. SUMMARIZED INCOME STATEMENT INFORMATION OF NONCONSOLIDATED AFFILIATES
(UNAUDITED)
The equity in loss of nonconsolidated affiliates includes the Company's 50%
interest in Posadas de San Juan Associates ("PSJA") for the three months
ended September 30, 1995 and 1994. The El Conquistador Hotel & Casino ("El
Conquistador") has a March 31 year end, which is three months earlier than
the Company's year end of June 30 and accordingly the equity in the results
of El Conquistador are recorded by the Company with a three month lag. The
equity in loss of nonconsolidated affiliates also includes for the three
months ended September 30, 1995 and 1994 the Company's 23.3% indirect
interest in the results of operations of the El Conquistador for the three
months ended June 30, 1995 and 1994.
The summarized statement of operations information of PSJA, which is 50%
owned by the Company, is as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended
September 30,
--------------------
1995 1994
-------- --------
<S> <C> <C>
Revenues............ $ 9,231 $ 10,472
Costs and expenses.. (11,931) (12,574)
-------- --------
Net loss............ ($ 2,700) ($ 2,102)
======== ========
</TABLE>
6
<PAGE>
The summarized statement of operations information of WKA EL Con
Associates, in which the Company has a 46.5 % partnership interest, is as
follows (in thousands):
<TABLE>
<CAPTION>
Three months ended
September 30,
-------------------
1995 1994
------- -------
<S> <C> <C>
Costs and expenses................................. ($75) ($103)
Equity in 50% of the El Conquistador net loss for
the three months ended June 30, 1995 and 1994...... (1,623) (2,757)
Equity in net income of Las Casitas................ 114 662
------- -------
Net loss........................................... ($1,584) ($2,198)
======= =======
</TABLE>
The summarized statement of operations information of El Conquistador
Partnership L.P., in which WKA EL Con Associates has a 50% partnership
interest, is as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended
June 30,
-------------------
1995 1994
-------- --------
<S> <C> <C>
Revenues........................................... $ 24,129 $ 22,619
Costs and expenses................................. (27,375) (28,133)
-------- --------
Net loss........................................... ($3,246) ($5,514)
======== ========
</TABLE>
The El Conquistador opened in November 1993 and the above periods include
continued start-up expenses which is typical of new properties.
3. SUBSEQUENT EVENTS
-----------------
On October 18, 1995, Bally Gaming International, Inc. (Bally Gaming)
reported the unilateral termination of the June 21, 1995 Agreement and Plan
of Merger (Agreement) with the Company and that it had entered into a
merger agreement with Alliance Gaming Corporation. The Company does not
intend to contest Bally Gaming and Alliance's decision to merge. On October
23, 1995, the Company commenced a lawsuit against Bally Gaming for its
failure to pay $4.8 million in termination fees due the Company under the
terms of the Agreement and for additional damages.
At September 30, 1995, the Company had incurred approximately $1.8 million
in acquisition costs from the proposed merger, included as noncurrent other
assets in the Balance Sheet at September 30, 1995, which will be offset
against the termination fees when received.
7
<PAGE>
WMS INDUSTRIES INC.
---------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
- -------------------
Cash flows from operating, investing and financing activities during the
three months ended September 30, 1995 resulted in net cash provided of
$20,406,000 as compared with net cash used of $8,726,000 during the three
months ended September 30, 1994. See condensed consolidated statements of
cash flows on page 5.
Operating activities used cash of $21,700,000 during the three months ended
September 30, 1995 compared with $7,215,000 for the three months ended
September 30, 1994. This change results from the use of cash since June
30, 1995 for operating assets and liabilities, net, primarily for an
increase in home video game inventories and an increase in receivables from
higher sales of home video games in the fiscal 1996 quarter. The increase
in inventories and receivables was partially offset by an increase in
payables to the manufacturers of the home video games.
Investing cash flows used for the purchase of property, plant and equipment
during the three months ended September 30, 1995 were $4,199,000 as
compared with $2,625,000 during the three months ended September 30, 1994.
The asset additions were primarily for the amusement games business.
Investing cash flows provided by the net sale of short-term investments
were $47,863,000 in the 1995 period compared to $5,750,000 in the 1994
period.
Cash used by financing activities for the payment of long-term debt was
$1,607,000 for the three months ended September 30, 1995 compared with cash
used of $711,000 for the same period last year.
The Condado Plaza has a $2,000,000 bank line of credit available which was
fully utilized at September 30, 1995 and the El San Juan has a $1,000,000
bank line of credit available of which $500,000 was borrowed at September
30, 1995. Condado Plaza and El San Juan long-term debt agreements provide
that advances, dividends and other payments to the owners are to be based
on defined levels of cash flow from the respective hotel/casino. Management
believes that cash flow from hotel/casino operations will be adequate to
pay their long-term debt as it becomes due and provide for the normal
planned capital additions.
WMS Industries Inc. has an uncollateralized bank line of credit which
permits it to borrow up to $25,000,000 or permits it or U.S. operating
subsidiaries to have letters of credit up to $25,000,000 outstanding. The
letter of credit availability was increased to $75,000,000 through December
31, 1995. At September 30, 1995, there were no borrowings from this line
of credit but there were outstanding letters of credit totaling
$30,296,000. Interest on the initial borrowings will be at a short-term
Eurodollar rate plus .75%. Management believes that cash flow from
operations, cash and cash equivalents and amounts available under the line
of credit will be adequate to fund the fluctuating level of inventories and
receivables required in the operation of the business and provide for
expansion of the business including the home video game business and gaming
devices.
8
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
The following summarizes the Condensed Consolidated Statements of Income
for the periods shown in the format presented as segment information in the
notes to the year-end consolidated financial statements (thousands of
dollars):
<TABLE>
<CAPTION>
Three months ended
September 30,
------------------
1995 1994
------- -------
<S> <C> <C>
REVENUES:
Amusement games........................................ $84,240 $66,886
Condado Plaza.......................................... 11,260 13,235
Williams Hospitality................................... 2,764 3,202
Intersegment revenues elimination - management fees.... (620) (936)
------- -------
Total revenues....................................... $97,644 $82,387
======= =======
SEGMENT OPERATING PROFIT (LOSS):
Amusement games........................................ $ 5,609 $ 3,762
Condado Plaza.......................................... (1,340) (1,460)
Williams Hospitality................................... 1,123 1,139
------- -------
Total segment operating profit....................... 5,392 3,441
Equity in loss of nonconsolidated affiliates........... (2,087) (2,074)
General corporate expenses............................. (1,109) (1,143)
------- -------
Income from operations................................. 2,196 224
Interest and other income.............................. 1,508 1,350
Interest expense....................................... (1,797) (1,912)
------- -------
Income (loss) before tax provision and minority
interests............................................. $ 1,907 $ (338)
======= =======
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED WITH
THREE MONTHS ENDED SEPTEMBER 30, 1994
Consolidated revenues increased from $82,387,000 in the quarter ended September
30, 1994 to $97,644,000 in the quarter ended September 30, 1995. Revenues of
the amusement games business increased 26% to $84,240,000 in the quarter ended
September 30, 1995. The increase in amusement games revenues results from a 109%
increase in sales of home video games as compared to the prior year quarter.
Sales for the quarter ended September 30, 1995 includes initial partial
shipments of Doom and Mortal Kombat 3 home video game cartridges. Coin operated
game sales and royalty income were 14% lower because of a 56% decrease in
pinball sales caused by a soft market which was partially offset by a
significant increase in sales of coin operated video games in the quarter ended
September 30, 1995.
Gross profit (excluding depreciation) of the amusement games business increased
in the quarter ended September 30, 1995 to $20,219,000 (24.0% of amusement games
business revenues) compared with $13,379,000 (20.0% of such revenues) in the
quarter ended September 30, 1994. The improvement in gross profit resulted from
the increased revenues from home video game cartridges that have higher gross
margins. However, a planned increase in research and development expense to
$7,516,000 in the quarter ended September 30, 1995 from $6,359,000 in the prior
year quarter reduced gross profit. The increased research and development
expenses include expenses associated with the Company's development of gaming
products and video games.
Operating profit of the amusement games business on a segment basis increased to
$5,609,000 in the quarter ended September 30, 1995 from $3,762,000 in the
quarter ended September 30, 1994. The improvement in operating profit was
primarily due to the same reasons as the increase in gross profit noted above
but reduced by higher selling and administrative and depreciation expenses.
The increase in selling and administrative expense of the amusement games
9
<PAGE>
business was primarily caused by an increase of $3,718,000 of selling and
administrative expense in the home video game cartridge business, primarily
advertising to support new product releases, and $709,000 higher selling and
administrative expense for gaming products. Depreciation expense incurred by the
amusement games business increased by $350,000.
Condado Plaza revenues were $11,260,000 in the quarter ended September 30, 1995
compared to $13,235,000 in the quarter ended September 30, 1994. Hotel revenues
were in line with the prior year quarter while casino net revenue decreased
primarily due to a significantly lower win percentage and higher casino
promotional expenses related to increased credit play.
The Condado Plaza's profit before selling and administrative expense (excluding
depreciation) decreased to $2,728,000 (24.2% of the Condado Plaza revenues) in
the quarter ended September 30, 1995 from $3,021,000 (22.8% of the Condado Plaza
revenues) in the quarter ended September 30, 1994. The decrease was due to the
lower revenues as explained above. However, profit before selling and
administrative expense (excluding depreciation) in the quarter ended September
30, 1995 increased as a percentage of revenues primarily due to emergency water
expenses incurred during the drought in the quarter ended September 30, 1994.
The Condado Plaza on a segment basis had an operating loss of ($1,340,000) for
the September 30, 1995 quarter compared with a loss of ($1,460,000) in the
quarter ended September 30, 1994. Notwithstanding the decrease in profit before
selling and administrative expense (excluding depreciation), the operating loss
was reduced as the result of lower administrative and insurance costs in
comparison with the prior year quarter.
Williams Hospitality revenues (before intersegment elimination) decreased to
$2,764,000 in the quarter ended September 30, 1995 from $3,202,000 in the
quarter ended September 30, 1994. These revenues consist primarily of
management and incentive fees based upon the revenues and gross operating
profits of the three hotel/casino operations. The lower revenue at Williams
Hospitality is consistent with the lower revenues and operating profits
experienced at two of the hotel/casinos.
The equity in loss of nonconsolidated affiliates was ($2,087,000) in the quarter
ended September 30, 1995 as compared with ($2,074,000) in the quarter ended
September 30, 1994. The change was small and included a decrease in the
Company's equity in net loss from the El Conquistador Hotel and Casino that was
($737,000) in the quarter ended September 30, 1995 compared with ($1,023,000) in
the September 30, 1994 quarter. Like most resort properties El Conquistador is
expected to report losses in its early years, but the Company's 23.3% equity in
the losses are expected to be partially offset by the Company's 62% interest in
the management fees earned during the year by Williams Hospitality from El
Conquistador. The 50% equity in the loss of the El San Juan increased to
($1,350,000) in the quarter ended September 30, 1995 from an equity in loss of
($1,051,000) in the prior year quarter. The El San Juan's hotel revenues
increased slightly due to higher food and beverage revenues but the casino
experienced a 42% decline in its net revenues from both lower table play and
lower win percentage. In spite of lower revenues, net loss was kept relatively
stable because of decreased operating expenses.
Consolidated selling and administrative expense increased primarily as a result
of the selling and administration expenses of the home video game business and
higher selling and administrative expenses for gaming products noted above.
Net income in the quarter ended September 30, 1995 was $268,000, $.01 per share,
in comparison to a net loss of ($1,073,000), ($.04) per share, in the quarter
ended September 30, 1994. The improvement in the first quarter operating
results compared to the prior year first quarter was primarily due to higher
home video game sales. Higher research and development expenses and higher
gaming products selling and administrative expenses had a negative impact on net
income, the benefits of which are expected to be realized in future periods.
The hotel/casino business operated at a net loss of ($2,723,000), ($.12) per
share, in the September 30, 1995 quarter in comparison to a net loss of
($2,890,000), ($.12) per share, in the prior year first quarter.
10
<PAGE>
PART II
OTHER INFORMATION
ITEM 6.(A) EXHIBITS
- -------------------
Exhibit 27 - Financial Data Schedule
11
<PAGE>
WMS INDUSTRIES INC.
-------------
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 duly authorized.
WMS INDUSTRIES INC.
-------------------
(Registrant)
Dated: November 3, 1995 By: /S/ Harold H. Bach, Jr.
----------------------------
Harold H. Bach, Jr.
Vice President-Finance
Principal Financial and
Chief Accounting Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 66,370
<SECURITIES> 0
<RECEIVABLES> 91,661
<ALLOWANCES> 1,442
<INVENTORY> 58,801
<CURRENT-ASSETS> 222,369
<PP&E> 137,701
<DEPRECIATION> 54,934
<TOTAL-ASSETS> 408,687
<CURRENT-LIABILITIES> 82,617
<BONDS> 86,634
<COMMON> 12,083
0
0
<OTHER-SE> 198,443
<TOTAL-LIABILITY-AND-EQUITY> 408,687
<SALES> 84,240
<TOTAL-REVENUES> 97,644
<CGS> 64,021
<TOTAL-COSTS> 73,620
<OTHER-EXPENSES> 3,141
<LOSS-PROVISION> 1,790
<INTEREST-EXPENSE> 1,797
<INCOME-PRETAX> 1,907
<INCOME-TAX> 1,341
<INCOME-CONTINUING> 268
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 268
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
