Mail Stop 7010
February 22, 2006
Via U.S. mail and facsimile
Brian R. Gamache
Chief Executive Officer
WMS Industries, Inc.
800 South Northpoint Boulevard
Waukegan, IL 60085
RE: WMS Industries, Inc.
Form 10-K for the fiscal year ended June 30, 2005
Form 10-Q for the fiscal quarter ended September 30, 2005
File No. 1-8300
Dear Mr. Gamache:
We have reviewed these filings and have the following
comments. Where indicated, we think you should revise your
document
in response to these comments. If you disagree, we will consider
your explanation as to why our comment is inapplicable or a
revision
is unnecessary. Please be as detailed as necessary in your
explanation. In some of our comments, we may ask you to provide
us
with information so we may better understand your disclosure.
After
reviewing this information, we may raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form 10-K for the Fiscal Year Ended June 30, 2005
Financial Statements
Statements of Operations, page F-5
1. You disclosed in your MD&A that one of the components which
contributed to the increase in selling and administrative expenses
was overtime and temporary contract labor for game installs and
participation placements. Please tell us how you determined these
costs should be included in selling and administrative expenses,
rather than as a component of your costs of sales.
2. You disclosed in your MD&A that depreciation and amortization
increased from fiscal 2004 to fiscal 2005 due to the increased
level
of investment in participation gaming machines for gaming
operations.
Based on this, it appears as though the depreciation associated
with
your gaming operations machines is not included as a component of
cost of sales. If our understanding is correct, please revise
your
statements of operations to include in cost of sales the
appropriate
portion of your depreciation expense associated with your gaming
operations machines. Alternatively, parenthetically include in
costs
of sales line item on the face of your statements of operations,
the
amount of depreciation expense excluded from your costs of sales,
which is included in depreciation and amortization. Refer to SAB
Topic 11:B.
Statements of Cash Flows, page F-7
3. You disclosed that you generate revenue from gaming operations
machines through various lease arrangements and through subsequent
sales of these used machines. For each period presented, please
tell
us what percentage of revenue is generated from leasing these
machines and what percentage is related to subsequent sales of
these
machines. Given the fact that you have included the additions to
gaming operations machines within investing activities, please
address the appropriateness of including the proceeds from the
sales
of used machines within operating activities, rather than in
investing activities. Please refer to paragraphs 24 and 87 of
SFAS
95
4. You disclosed on page F-8 that during fiscal 2005 you
reclassified
your investments and advances in other assets relating to
technology
and brand license agreements and costs paid to third parties for
patents and trademarks from operating activities to investing
activities. We note that this disclosure is provided under your
Note
2 - Principal Accounting Policies - Consolidation and that your
current disclosure lacks an explanation of why this
reclassification
was necessary. Based on your limited disclosures, it appears to
us
that in prior periods you may have inappropriately classified your
investments and advances in other assets related to technology and
brand license agreements and cost paid to third parties for
patents
and trademark and thus these reclassifications may be the result
of a
correction of an error in previously issued financial statements.
We
also note that this restatement is quantitatively material to your
investing and operating cash flows for the prior periods
presented.
Please tell us how your financial statements comply with the
disclosure requirements of paragraphs 36 and 37 of APB 20 and why
you
have not labeled your Consolidated Statements of Cash Flows as
restated. Please also ask your auditors to address why they did
not
provide an explanatory paragraph in their Report of Independent
Registered Public Accounting Firm.
Notes to Financial Statements
Note 2: Principal Accounting Policies, Revenue Recognition, page
F-11
5. You indicate on page 13 that you sell used games that are
acquired
on a trade-in basis. Clarify whether you offer specified-price
trade-in arrangements on gaming equipment sales that give your
customers the right to trade in that equipment toward the purchase
of
new equipment at some point in the future. If so, please address
the
accounting guidance set forth in EITF 00-24: Revenue Recognition:
Sales Arrangements That Include Specified-Price Trade-in Rights.
Form 10-Q for the Fiscal Quarter Ended December 31, 2005
Comments applicable to your overall filing
Financial Statements
Income Statements, page 3
6. You disclosed on page 26 that your leased facility in Gulfport
was
damaged from Hurricanes Katrina and Rita. You further disclosed
that
you are assessing the usability of the inventory and participation
gaming machines damaged in your Gulfport facility. Please tell us
and, if material, revise your disclosures to clarify the amount
recorded or anticipated to be recorded to write down your
inventory
and participation gaming machines to fair market value and any
impairment charges recorded or anticipated to be recorded on your
plant, property, and equipment.
* * * *
Please respond to these comments within 10 business days, or
tell us when you will provide us with a response. Please provide
us
with a response letter that keys your responses to our comments
and
provides any requested information. Detailed letters greatly
facilitate our review. Please file your letter on EDGAR as a
correspondence file. Please understand that we may have
additional
comments after reviewing your responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing includes all information required under the Securities
Exchange Act of 1934 and that they have provided all information
investors require for an informed investment decision. Since the
company and its management are in possession of all facts relating
to
a company`s disclosure, they are responsible for the accuracy and
adequacy of the disclosures they have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in their filings;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
If you have any questions regarding these comments, please
direct them to Meagan Caldwell, Staff Accountant, at (202) 551-
3754
or, in her absence, Jeanne Baker, Assistant Chief Accountant, at
(202) 551-3691.
Sincerely,
Rufus Decker
Accounting Branch Chief
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Mr. Brian R. Gamache
WMS Industries, Inc.
February 22, 2006
Page 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-7010
DIVISION OF
CORPORATION FINANCE