<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 March 31, 1996
--------------------------------------------
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
Incorporation or Organization) Identification No.)
3401 North California Ave., Chicago, IL 60618
- ----------------------------------------- -----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (312) 961-1111
--------------------
N/A
--------------------------------------------------------
Former name, former address and former
fiscal year, if changed since last report.
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 (check mark) NO
---------------- ----------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 24,126,300 shares of common
stock, $.50 par value, were outstanding at April 30, 1996 after deducting 54,312
shares held as treasury shares.
<PAGE>
WMS INDUSTRIES INC.
------------
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION:
- -------
ITEM 1. Financial Statements:
-------
Condensed Consolidated Statements of Income--Three and
nine months ended March 31, 1996 and 1995 .............. 2
Condensed Consolidated Balance Sheets--March 31, 1996
and June 30, 1995 ...................................... 3-4
Condensed Consolidated Statements of Cash Flows--Nine
months ended March 31, 1996 and 1995 ................... 5
Notes to Condensed Consolidated Financial Statements ... 6-8
ITEM 2. Management's Discussion and Analysis of Financial
------- Condition and Results of Operations .................... 9-13
PART II. OTHER INFORMATION:
- --------
ITEM 6.(A) Exhibits ............................................ 14
----------
SIGNATURE ............................................................ 15
<PAGE>
WMS INDUSTRIES INC.
---------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Thousands of dollars, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
------------------ --------------------
1996 1995 1996 1995
------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Net sales--amusement games ......................................... $67,500 $72,715 $264,956 $233,368
Management fees--Williams Hospitality .............................. 4,897 4,615 10,177 10,224
Condado Plaza hotel/casino:
Casino ......................................................... 6,348 6,058 17,485 19,206
Casino promotional allowances .................................. (1,682) (2,193) (5,655) (5,311)
Rooms .......................................................... 8,107 8,303 19,614 19,668
Food and beverage .............................................. 2,994 3,123 8,469 8,843
Other .......................................................... 786 835 2,216 2,404
------- ------- -------- --------
16,553 16,126 42,129 44,810
------- ------- -------- --------
Total revenues ......................................................... 88,950 93,456 317,262 288,402
Costs and expenses:
Cost of sales (excluding depreciation)--amusement games ............ 51,611 51,321 197,720 180,322
Williams Hospitality operating expenses (excluding depreciation) ... 949 1,549 2,903 4,015
Condado Plaza operating expenses (excluding depreciation):
Casino ......................................................... 3,293 3,554 9,011 10,745
Rooms .......................................................... 2,321 2,358 6,599 6,920
Food and beverage .............................................. 2,590 2,869 7,528 8,001
Other .......................................................... 1,410 1,572 4,025 5,028
------- ------- -------- --------
9,614 10,353 27,163 30,694
Selling and administrative ......................................... 11,332 10,758 47,196 33,422
Depreciation and amortization ...................................... 3,529 3,049 9,478 8,619
Equity in loss of nonconsolidated affiliates. ...................... 318 2,392 3,915 6,272
------- ------- -------- --------
Total costs and expenses ............................................... 77,353 79,422 288,375 263,344
------- ------- -------- --------
Income from operations ................................................. 11,597 14,034 28,887 25,058
Interest and other income .............................................. 1,690 1,753 4,389 4,516
Interest expense ....................................................... (1,753) (2,035) (5,299) (5,794)
------- ------- -------- --------
Income before tax provision and minority interests ..................... 11,534 13,752 27,977 23,780
Provision for income taxes ............................................. (2,828) (4,609) (8,916) (8,548)
Minority interests in income ........................................... (1,585) (1,116) (2,779) (2,176)
------- ------- -------- --------
Net income ............................................................. $ 7,121 $ 8,027 $ 16,282 $ 13,056
======= ======= ======== ========
Net income per share of common stock ................................... $ 0.30 $ 0.33 $ 0.68 $ 0.54
======= ======= ======== ========
Shares used in calculating per share amounts ........................... 24,126 24,103 24,119 24,100
======= ======= ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
WMS INDUSTRIES INC.
---------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)
(Unaudited)
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
--------- --------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents ..................................... $ 65,440 $ 45,964
Short-term investments ........................................ 30,753 47,863
Receivables, net of $4,252 and $1,914 allowance ............... 82,634 57,919
Receivables from nonconsolidated affiliates ................... 3,068 3,376
Inventories, at lower of cost (Fifo) or market:
Raw materials and work in progress ........................ 52,092 36,667
Finished goods ............................................ 14,026 5,221
-------- --------
66,118 41,888
Other current assets .......................................... 6,889 6,218
-------- --------
Total current assets .................................. 254,902 203,228
Investments in, receivables and advances to nonconsolidated
affiliates ...................................................... 24,545 26,320
Investment in marketable equity securities ........................ 21,063 23,187
Property, plant and equipment ..................................... 143,608 133,564
Less: accumulated depreciation .................................... (59,859) (52,370)
-------- --------
83,749 81,194
Excess of purchase cost over amount assigned to net assets
acquired, net of accumulated amortization of $4,832 and $3,740 .. 33,417 20,109
Other assets ...................................................... 29,853 32,028
-------- --------
$447,529 $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>
March 31, June 30,
1996 1995
--------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable ............................................. $ 31,858 $ 33,922
Accrued compensation and related benefits .................... 13,827 7,123
Income taxes payable ......................................... 516 5,328
Deferred income taxes ........................................ 1,365 1,819
Accrued payment on 1994 purchase of Tradewest ................ 11,395 --
Accrued royalties payable .................................... 9,153 1,992
Other accrued liabilities .................................... 22,051 7,898
Note payable ................................................. 2,000 2,000
Current maturities of long-term debt ......................... 3,176 3,813
-------- --------
Total current liabilities ................................ 95,341 63,895
Long-term debt, less current maturities .......................... 89,882 84,428
Deferred income taxes ............................................ 7,579 4,088
Other noncurrent liabilities ..................................... 13,343 8,721
Minority interests ............................................... 18,457 16,363
Stockholders' equity:
Preferred stock (5,000,000 shares authorized, none issued) ... -- --
Common stock (24,180,612 and 24,165,612 shares issued) ....... 12,090 12,083
Additional paid-in capital ................................... 82,036 81,851
Retained earnings ............................................ 135,649 119,367
-------- --------
229,775 213,301
Treasury stock, at cost (54,312 and 56,312 shares) ........... (153) (159)
Unrealized loss on noncurrent marketable equity securities ... (6,695) (4,571)
-------- --------
Total stockholders' equity ............................... 222,927 208,571
-------- --------
$447,529 $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>
Nine months ended
March 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ........................................................................ $ 16,282 $ 13,056
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ................................................. 9,478 8,619
Receivables provision ......................................................... 4,497 4,394
Undistributed loss of nonconsolidated affiliates .............................. 3,915 6,272
Minority interests ............................................................ 2,779 2,176
Deferred income taxes ......................................................... 623 2,672
Tax benefit from exercise of common stock options ............................. 124 21
Decrease resulting from changes in operating assets and liabilities, net ...... (29,922) (13,161)
-------- --------
Net cash provided by operating activities ......................................... 7,776 24,049
INVESTING ACTIVITIES:
Purchase of property, plant and equipment ......................................... (10,065) (13,604)
Purchase of additional shares of subsidiaries ..................................... -- (3,925)
Net change in short-term investments .............................................. 17,110 (11,949)
Cash acquired in acquisition of Atari Games Corporation, net of cash used ......... 7,996 --
Other ............................................................................. 985 (1,698)
-------- --------
Net cash provided (used) by investing activities .................................. 16,026 (31,176)
FINANCING ACTIVITIES:
Payment of long-term debt ......................................................... (3,670) (3,901)
Dividends paid to minority shareholders of subsidiary ............................. (684) --
Cash received on exercise of common stock options ................................. 28 37
-------- --------
Net cash used by financing activities ............................................. (4,326) (3,864)
-------- --------
Increase (decrease) in cash and cash equivalents .................................. 19,476 (10,991)
Cash and cash equivalents at beginning of period .................................. 45,964 34,239
-------- --------
Cash and cash equivalents at end of period ........................................ $ 65,440 $ 23,248
======== ========
</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 nine month period
ended March 31, 1996 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 and nine
months ended March 31, 1996 and 1995. 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 March 31, 1996 and 1995, the Company's 23.3% indirect
interest in the results of operations of the El Conquistador for the three
months ended December 31, 1995 and 1994 and the nine months ended March 31,
1996 and 1995 includes operations of the El Conquistador for the nine months
ended December 31, 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 Nine months ended
March 31, March 31,
--------------------- --------------------
1996 1995 1996 1995
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Revenues............ $ 15,607 $ 15,414 $ 38,455 $ 40,642
Costs and expenses.. (13,993) (14,559) (39,019) (41,314)
-------- -------- -------- --------
Net income (loss)... $ 1,614 $ 855 ($564) ($672)
======== ======== ======== ========
</TABLE>
6
<PAGE>
The summarized statement of operations information of WKA EL Con
Associates, in which the Company has a 46.5% partnership interest, is as
follows (in thousands):
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
------------------ ------------------
1996 1995 1996 1995
------- ------- ------- --------
<S> <C> <C> <C> <C>
Costs and expenses.................................. ($ 38) ($124) ($155) ($335)
Equity in 50% of the El Conquistador net loss for
the three and nine months ended December 31,
1995 and 1994...................................... (2,379) (5,996) (7,964) (13,968)
Equity in net income of Las Casitas................. 0 63 313 1,549
------- ------- ------- --------
Net loss............................................ ($2,417) ($6,057) ($7,806) ($12,754)
======= ======= ======= ========
</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 Nine months ended
December 31, December 31,
--------------------- ---------------------
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues.................................................... $ 19,353 $ 17,329 $ 57,191 $ 53,856
Costs and expenses.......................................... (24,111) (29,322) (73,118) (81,792)
--------- --------- --------- ---------
Net loss.................................................... ($ 4,758) ($11,993) ($15,927) ($27,936)
========= ========= ========= =========
</TABLE>
The El Conquistador opened in November 1993 and the 1994 periods include
continued start-up expenses which is typical of new properties.
3. ACQUISITION
-----------
On March 29, 1996, a wholly-owned subsidiary of the Company acquired all
the capital stock of Atari Games Corporation ("Atari Games") from Warner
Communications Inc., a subsidiary of Time Warner Inc. The acquisition has
been accounted for by the purchase method and, accordingly, the results of
operations of Atari Games subsequent to the acquisition date will be
included in subsequent Consolidated Statements of Income of the Company.
The assets and liabilities of Atari Games have been included in the
Condensed Consolidated Balance Sheet of the Company at March 31, 1996 based
upon a preliminary allocation of the purchase price. Headquartered in
Milpitas, California, Atari Games is engaged in the business of developing,
manufacturing, licensing, publishing and distributing coin operated video
arcade games and interactive electronic and game entertainment products for
use with home video games.
The preliminary purchase price for Atari Games is a minimum of $10,487,000
and a maximum of $25,763,000. The preliminary purchase price was computed
based upon the book net asset value of Atari Games as of March 29, 1996
with a portion of the purchase price contingent upon future gross profits,
as defined, of Atari Games. The preliminary purchase price is subject to
adjustment based upon the Atari Games' March 29, 1996 final balance sheet
to be delivered by June 27, 1996 and then audited.
7
<PAGE>
The preliminary minimum purchase price included cash of $2,000,000 and
a two year non-recourse promissory note (the "Two Year Note") payable
on March 29, 1998 for $8,487,000, or 10/28th of the balance of the
final maximum purchase price. Additional purchase price in the form
of a four year non-recourse promissory note (the "Four Year Note")
payable in semi-annual installments is contingent on the gross
profits, as defined, of Atari Games over the next four years and will
be recorded incrementally as future cash gross profits are realized.
The preliminary maximum amount of the Four Year Note is $15,276,000,
or 18/28th of the balance of the maximum final purchase price. Semi-
annual installments are to be made on the Four Year Note equal to 50%
of the cash gross profit from the sale or distribution of certain
products and intellectual property with respect thereto owned by Atari
Games (the "Products").
The Two Year Note is collateralized by the capital stock of Atari
Games. The Company's obligations under the Two Year Note may be
satisfied by relinquishing the capital stock of Atari Games to Warner.
The Four Year Note is secured by the Products. Atari Game's unpaid
obligations under the Four Year Note may be satisfied by transferring
the Products to Warner.
The preliminary allocation of the purchase price, which includes
$750,000 of acquisition costs but excludes the balance of the Four
Year Note, to the assets and liabilities of Atari Games after
reflecting $4,500,000 of liabilities to exit certain acquired
activities results in negative goodwill of $2,962,000. The principal
exit activities include closing the leased manufacturing plant in
California and transferring the production of future video arcade
games to the Company's existing Chicago plants; combining the sales,
marketing and distribution of home video games with the Company's home
video operations; sale of an Irish subsidiary that produces video
arcade games; sale of a subsidiary in Japan that develops and markets
home video games; and downsizing certain elements of the video arcade
product development activities that are duplicative of similar
activities in Chicago. The $4,500,000 liability for exit activities
includes employee severance and relocation, contractual liabilities,
direct exit costs and estimated losses of the two foreign subsidiaries
until disposition. Any change in the exit liability would result in
an adjustment to negative goodwill.
4. CONTINGENCY
-----------
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 $4,800,000 in termination fees due
the Company under the terms of the Agreement and for additional
damages.
At March 31, 1996, the Company had incurred approximately $2,300,000
in acquisition costs from the proposed merger, included as noncurrent
other assets in the Condensed Consolidated Balance Sheet at March 31,
1996, which will be offset against the termination fees when received.
8
<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 nine
months ended March 31, 1996 resulted in net cash provided of $19,476,000 as
compared with net cash used of $10,991,000 during the nine months ended March
31, 1995. See condensed consolidated statements of cash flows on page 5.
Operating activities provided cash of $7,776,000 during the nine months ended
March 31, 1996 compared with cash provided of $24,049,000 for the nine months
ended March 31, 1995. This change results from the use of cash since June 30,
1995 for operating assets and liabilities, net, which includes an increase in
receivables from higher sales of home video games and gaming machines in fiscal
1996, and an increase in inventories related to the ramp-up of production of
gaming machines. These increases were partially offset by an increase in accrued
liabilities of the home video games business.
Investing cash flows used for the purchase of property, plant and equipment
during the nine months ended March 31, 1996 were $10,065,000 as compared with
$13,604,000 during the nine months ended March 31, 1995. The asset additions
were primarily for the amusement games business. Investing cash flows provided
by the net sale of short-term investments were $17,110,000 in the 1996 period
compared to $11,949,000 used for the net purchase of short-term investments in
the 1995 period. The nine months ended March 31, 1996 also included net cash
provided of $7,996,000 acquired in the acquisition of Atari Games.
Cash used by financing activities for the payment of long-term debt was
$3,670,000 for the nine months ended March 31, 1996 compared with cash used of
$3,901,000 for the same period last year. Dividends paid to the minority
shareholders of Williams Hospitality Group Inc. for the nine months ended March
31, 1996 were $684,000 compared to none in the prior nine month period.
The Condado Plaza has a $2,000,000 bank line of credit available which was fully
utilized at March 31, 1996 and the El San Juan has a $1,000,000 bank line of
credit available of which $600,000 was borrowed at March 31, 1996. 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. At March 31, 1996, there were
no borrowings from this line of credit but there were outstanding letters of
credit totaling $845,000. 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.
9
<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 Nine months ended
March 31, March 31,
-------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Amusement games...................................... $67,500 $72,715 $264,956 $233,368
Condado Plaza........................................ 16,553 16,126 42,129 44,810
Williams Hospitality................................. 6,108 5,904 12,944 13,640
Intersegment revenues elimination - management fees.. (1,211) (1,289) (2,767) (3,416)
-------- -------- -------- --------
Total revenues..................................... $88,950 $93,456 $317,262 $288,402
======== ======== ======== ========
SEGMENT OPERATING PROFIT (LOSS):
Amusement games...................................... $ 6,219 $13,904 $ 25,834 $ 28,420
Condado Plaza........................................ 2,692 627 2,800 (245)
Williams Hospitality................................. 4,606 3,493 8,371 7,214
-------- ------- -------- --------
Total segment operating profit..................... 13,517 18,024 37,005 35,389
Equity in loss of nonconsolidated affiliates......... (318) (2,392) (3,915) (6,272)
General corporate expenses........................... (1,602) (1,598) (4,203) (4,059)
-------- ------- -------- --------
Income from operations............................... 11,597 14,034 28,887 25,058
Interest and other income............................ 1,690 1,753 4,389 4,516
Interest expense..................................... (1,753) (2,035) (5,299) (5,794)
-------- ------- -------- --------
Income before tax provision and minority interests... $11,534 $13,752 $ 27,977 $ 23,780
======== ======= ======== ========
</TABLE>
THREE MONTHS ENDED MARCH 31, 1996 COMPARED WITH
THREE MONTHS ENDED MARCH 31, 1995
Consolidated revenues decreased to $88,950,000 in the quarter ended March 31,
1996 from $93,456,000 in the quarter ended March 31, 1995. Revenues of the
amusement games business decreased 7.2% to $67,500,000 in the quarter ended
March 31, 1996. The decrease in amusement games revenues was attributable to
lower licensing revenue, a 49% decline in revenue from pinball sales, caused by
a very weak market, in part offset by increased revenues from slot machine and
home video game sales. Shipments of home video games Doom and Mortal Kombat 3
continued to exceed expectations in the quarter ended March 31, 1996
notwithstanding the high level of shipments of these games during the 1995
holiday season.
Gross profit (excluding depreciation) of the amusement games business decreased
in the quarter ended March 31, 1996 to $15,889,000 (23.5% of amusement games
business revenues) compared with $21,394,000 (29.4% of such revenues) in the
quarter ended March 31, 1995. Gross profit in the quarter ended March 31, 1996
included $7,698,000 compared to $13,500,000 in the prior year quarter from the
licensing of the distribution of video games for use on personal computers and
licensing certain foreign distribution of home video games. Excluding the gross
profit from licensing agreements, gross profit for the March 31, 1996 quarter
would have been $8,191,000 (14.2% of comparable revenues) compared with
$7,894,000 (13.7% of comparable revenues) in the March 31, 1995 quarter.
Excluding gross profit from the licensing agreements, amusement games gross
profit would have had a sizeable increase in comparison to the prior year third
quarter due to higher revenues from home video games that have a higher gross
margin than coin operated game sales, however, lower gross profit from pinball
sales compared to the prior year third quarter and increased research and
development expense nearly offset the increase from home video game sales
resulting in a modest increase. Planned research and development expense
increased 48% to $9,175,000 in the quarter ended March 31, 1996 from $6,189,000
in the prior year quarter. The increased research and development expenses
include expenses associated with the Company's development of gaming products
and new video games.
10
<PAGE>
Operating profit of the amusement games business on a segment basis decreased to
$6,219,000 in the quarter ended March 31, 1996 from $13,904,000 in the prior
year second quarter. The decline in operating profit was primarily due to the
same reasons as the decrease in gross profit noted above but was further reduced
by higher selling and administrative and depreciation expenses. The higher
selling and administrative expense was almost entirely from the gaming products
business.
Condado Plaza revenues were $16,553,000 in the quarter ended March 31, 1996
compared to $16,126,000 in the quarter ended March 31, 1995. Hotel revenues were
slightly lower than the prior year quarter due a lower average room rate while
casino net revenue was higher due to a higher win percentage and lower casino
promotional expenses.
The Condado Plaza's profit before selling and administrative expense (excluding
depreciation) of $6,939,000 (41.9% of the Condado Plaza revenues) in the quarter
ended March 31, 1996 increased over the prior year quarter profit of $5,773,000
(35.8% of the Condado Plaza revenues). The increase was due to higher casino net
revenues and cost reductions in both the hotel and casino.
The Condado Plaza on a segment basis had operating profit of $2,692,000 for the
March 31, 1996 quarter compared with operating profit of $627,000 in the quarter
ended March 31, 1995. Operating profit increased as the result of lower
administrative and depreciation expenses, coupled with higher profit before
selling and administrative expense as noted above.
Williams Hospitality revenues (before intersegment elimination) increased to
$6,108,000 in the quarter ended March 31, 1996 from $5,904,000 in the quarter
ended March 31, 1995. The Williams Hospitality higher revenue is primarily from
higher management fees from all three hotel/casino properties partially offset
by lower centralized service fees as certain services are now performed at the
properties. The increased segment operating profit of $1,113,000 results
primarily from the increase in management fees.
The equity in loss of nonconsolidated affiliates was ($318,000) in the quarter
ended March 31, 1996 as compared with ($2,392,000) in the quarter ended March
31, 1995. The change included a decrease in the Company's equity in net loss
from the El Conquistador Hotel and Casino that was ($1,125,000) in the quarter
ended March 31, 1996 compared with ($2,819,000) in the March 31, 1995 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
largely 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 income of the El San Juan of $807,000 in the quarter ended March 31, 1996
compares to equity in income of $427,000 in the prior year quarter. The El San
Juan's hotel revenues increased but the casino experienced a 9% decline in its
net revenues primarily from lower table play. The El San Juan's income increased
due to higher hotel revenues and reduced casino operating expenses including a
lower provision for bad debts.
Consolidated selling and administrative expense increased over the prior year
quarter primarily as a result of the increased selling and administrative
expenses related to the casino slot machine business partially offset by lower
expenses in the hotel/casino operations.
11
<PAGE>
Net income in the third quarter of fiscal 1996 was $7,121,000, $.30 per share,
in comparison to net income of $8,027,000, $.33 per share, in the fiscal 1995
third quarter. The March 31, 1996 quarter includes net income of $4,318,000,
$.18 per share, and the March 31, 1995 quarter includes net income of
$8,130,000, $.34 per share, from licensing the distribution of video games for
use on personal computers and licensing certain foreign distribution of home
video games. The hotel/casino operating results improved with net income of
$3,945,000, $.16 per share, in the March 31, 1996 quarter in comparison to a net
loss of ($191,000), ($.01) per share, in the prior year third quarter. After
excluding the hotel/casino operating results the decline in third quarter net
income compared to prior year third quarter was due to lower licensing net
income noted above and higher research and development expenses, the benefits of
which are expected to be realized in future periods
NINE MONTHS ENDED MARCH 31, 1996 COMPARED WITH
NINE MONTHS ENDED MARCH 31, 1995
Consolidated revenues increased from $288,402,000 in the nine months ended March
31, 1995 to $317,262,000 in the nine months ended March 31, 1996. Revenues of
the amusement games business increased 13.5% to $264,956,000 in the nine months
March 31, 1996 from significantly higher sales of video games into the home
video game market than in the prior year period. Home video game sales for the
nine months ended March 31, 1996 consisted primarily of Doom and Mortal Kombat
3. Coin operated amusement games revenues decreased approximately 32% in the
nine months ended March 31, 1996 compared to the March 31, 1995 period. This
decrease was primarily due to a 54% decrease in pinball sales caused by a weak
market.
Gross profit (excluding depreciation) of the amusement games business increased
in the nine months ended March 31, 1996 to $67,236,000 (25.4% of amusement games
business revenues) compared with $53,046,000 (22.7% of such revenues) in the
nine months ended March 31, 1995. Excluding the $7,698,000 increase in gross
profit in the nine months ended March 31, 1996 from the licensing of the
distribution of video games for use on personal computers and licensing certain
foreign distribution of home video games, gross profit from the amusement game
business would have been $59,538,000. In the nine months ended March 31, 1995,
gross profit would have been $31,446,000 excluding the gross profit from
licensing of the distribution of home video games. This improvement in gross
profit resulted from significantly higher revenues from home video game sales,
which have a higher gross margin than coin operated game sales, partially offset
by lower gross profit from pinball sales and higher research and development
expense. As planned, research and development expense increased to $26,718,000
in the nine months ended March 31, 1996 from $18,961,000 in the prior year
period. The increased research and development expenses include expenses
associated with the Company's development of gaming products and new video
games.
Operating profit of the amusement games business on a segment basis decreased to
$25,834,000 in the nine months ended March 31, 1996 from $28,420,000 in the nine
months ended March 31, 1995. Higher gross profit discussed above was more than
offset by increased selling and administrative and depreciation expenses. The
increase in selling and administrative expense of amusement games was primarily
caused by a $12,517,000 increase in selling and administration expense for home
video games and an increase in such cost in the gaming products business. The
home video games business is expected to incur higher selling expense as a
percentage of sales than the coin operated games business due to the significant
promotions required to support product sales at the retail level. The home video
business is expected to generate a higher gross profit as a percentage of sales
to more than offset the increased selling cost.
Condado Plaza revenues were $42,129,000 in the nine months ended March 31, 1996
compared to $44,810,000 in the nine months ended March 31, 1995. Hotel revenues
were slightly lower than the prior year period due to lower food and beverage
sales. Casino net revenue decreased primarily due to a significantly lower win
percentage, notwithstanding higher table play.
12
<PAGE>
The Condado Plaza's profit before selling and administrative expense (excluding
depreciation) increased to $14,966,000 (35.5% of the Condado Plaza revenues) in
the nine months ended March 31, 1996 from $14,116,000 (31.5% of the Condado
Plaza revenues) in the nine months ended March 31, 1995. The increase was due to
lower expenses due to cost reductions in both the hotel and casino.
The Condado Plaza on a segment basis had operating profit of $2,800,000 for the
nine months ended March 31, 1996 compared with an operating loss of ($245,000)
in the nine months ended March 31, 1995. The improved results reflect higher
profit before selling and administrative expense discussed above and lower
administrative and depreciation expenses in the current nine month period.
Williams Hospitality revenues (before intersegment elimination) decreased to
$12,944,000 in the nine months ended March 31, 1996 from $13,640,000 in the nine
months ended March 31, 1995. The lower revenues at Williams Hospitality are
primarily from reduced centralized services provided to the properties as
certain services are now performed at the properties, partially offset by higher
management fees that resulted in the $1,157,000 increase in segment operating
profit.
The equity in loss of nonconsolidated affiliates was ($3,915,000) in the nine
months ended March 31, 1996 as compared with ($6,272,000) in the nine months
ended March 31, 1995. The decreased loss was primarily due to the Company's
equity in net loss from the El Conquistador Hotel and Casino that was
($3,633,000) in the nine months ended March 31, 1996 compared to equity in loss
of ($5,936,000) in the prior year period. 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 largely 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
was ($282,000) in the nine months ended March 31, 1996 compared to equity in
loss of ($336,000) in the prior year nine month period. The El San Juan's hotel
revenues increased in the current nine month period but the casino experienced a
28% decline in its net revenues from both lower table play and lower win
percentage. Lower casino revenues were partially offset by lower casino
operating expenses including a lower provision for bad debts.
Consolidated selling and administrative expense increased primarily as a result
of increased selling and administrative expenses of the home video game business
to support new product releases and selling and administrative expenses related
to the casino slot machines partially offset by lower hotel/casino selling and
administrative expenses.
The nine months ended March 31, 1996 net income was $16,282,000, $.68 per share,
in comparison to $13,056,000, $.54 per share, in the nine months ended March 31,
1995. Net income for the nine months ended March 31, 1996 included $4,318,000,
$.18 per share, related to licensing the distribution of video games for use on
personal computers mentioned above as compared to $13,314,000, $.56 per share,
in the nine months ended March 31, 1995. Excluding the net income from
licensing, the improvement in net income over the prior year nine month period
was from profits generated from significantly higher home video game sales and
net income of $.08 per share from the hotel/casino business as compared to a
prior year nine month net loss of ($.13) per share from the hotel/casino
business offset by higher research and development expenses, the benefits of
which are expected to be realized in future periods, and lower profits generated
from lower coin operated game sales.
13
<PAGE>
PART II
OTHER INFORMATION
ITEM 6.(A) EXHIBITS
- -------------------
Exhibit 27 - Financial Data Schedule
14
<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: May 13, 1996 By: /S/ Harold H. Bach, Jr.
----------------------------
Harold H. Bach, Jr.
Vice President-Finance
Principal Financial and
Chief Accounting Officer
15
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<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
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