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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2000
Commission file number: 1-8310
WMS INDUSTRIES INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 36-2814522
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
800 South Northpoint Blvd., Waukegan, IL 60085
(Address of Principal Executive Offices) (Zip Code)
(847) 785-3000
(Registrant's telephone number, including area code)
3401 North California Ave., Chicago, IL 60618
---------------------------------------------
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 X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 31,621,165 shares of common
stock, $.50 par value, were outstanding at February 1, 2001, excluding 77,312
shares held as treasury shares.
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WMS INDUSTRIES INC.
INDEX
PART I. FINANCIAL INFORMATION: Page
Number
ITEM 1. Financial Statements:
Condensed Consolidated Statements of Operations -
Three and six months ended December 31, 2000 and 1999................ 2
Condensed Consolidated Balance Sheets -
December 31, 2000 and June 30, 2000.................................. 3-4
Condensed Consolidated Statements of Cash Flows -
Six months ended December 31, 2000 and 1999.......................... 5
Notes to Condensed Consolidated Financial Statements................. 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................ 7-12
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk........... 13
PART II. OTHER INFORMATION:
ITEM 4. Submission of Matters to a Vote of Security Holders.................. 13
ITEM 6. Exhibits and Reports on Form 8-K..................................... 13
SIGNATURES ..................................................................... 13
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WMS INDUSTRIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands, except per share amounts)
(Unaudited)
Three Months ended Six Months ended
December 31, December 31,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
Revenues
Machine sales $ 45,611 $ 34,791 $ 85,872 $ 67,119
Participation and lease 21,797 17,039 41,378 32,731
-------- -------- -------- --------
Total revenues 67,408 51,830 127,250 99,850
-------- -------- -------- --------
Costs and Expenses
Cost of sales 26,264 21,601 49,010 39,623
Cost of participation and lease revenue 2,918 1,772 5,831 3,964
Research and development 4,085 2,492 7,624 5,044
Selling and administrative 13,220 11,163 25,050 19,864
Depreciation and amortization 4,379 3,785 8,442 7,021
Reversal of excess accrual due to settlement of litigation -- (13,160) -- (13,160)
Corporate relocation 2,540 -- 3,073 --
-------- -------- -------- --------
Total costs and expenses 53,406 27,653 99,030 62,356
-------- -------- -------- --------
Operating income 14,002 24,177 28,220 37,494
Interest and other income and expense, net 1,184 678 2,231 1,560
-------- -------- -------- --------
Income from continuing operations before income taxes 15,186 24,855 30,451 39,054
Provision for income taxes 5,769 9,445 11,571 14,840
-------- -------- -------- --------
Income from continuing operations 9,417 15,410 18,880 24,214
Discontinued operations, net of applicable income taxes
Pinball and cabinets segment
Loss from discontinued operations -- -- -- (469)
Income (costs) related to discontinuance 1,616 -- 1,616 (13,200)
Contract manufacturing segment
Income from discontinued operations -- 148 -- 293
-------- -------- -------- --------
Net income $ 11,033 $ 15,558 $ 20,496 $ 10,838
======== ======== ======== ========
Basic earnings per share of common stock:
Income from continuing operations $ 0.30 $ 0.50 $ 0.60 $ 0.79
Income (loss) from discontinued operations 0.05 0.01 0.05 (0.43)
-------- -------- -------- --------
Net income $ 0.35 $ 0.51 $ 0.65 $ 0.36
======== ======== ======== ========
Diluted earnings per share of common stock:
Income from continuing operations $ 0.29 $ 0.49 $ 0.59 $ 0.78
Income (loss) from discontinued operations 0.05 0.01 0.05 (0.43)
-------- -------- -------- --------
Net income $ 0.34 $ 0.50 $ 0.64 $ 0.35
======== ======== ======== ========
Shares used in per share calculations:
Basic 31,601 30,573 31,344 30,480
======== ======== ======== ========
Diluted 32,324 31,305 31,991 31,240
======== ======== ======== ========
See notes to condensed consolidated financial statements.
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WMS INDUSTRIES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)
December 31, June 30,
2000 2000
--------- ---------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 7,053 $ 19,869
Short-term investments 78,700 60,800
--------- ---------
85,753 80,669
Receivables, net of allowances of $ 4,447 and $ 3,592 51,548 45,190
Notes receivable, current portion 10,596 9,076
Inventories, at lower of cost (FIFO) or market:
Raw materials and work in progress 11,787 10,152
Finished goods 31,426 22,766
--------- ---------
43,213 32,918
Deferred income taxes 7,235 9,279
Prepaid expenses 6,683 1,198
Assets of discontinued operations 158 5,246
--------- ---------
Total current assets 205,186 183,576
Gaming machines on participation or lease 46,399 35,726
Less accumulated depreciation (25,066) (18,917)
--------- ---------
21,333 16,809
Property, plant and equipment 42,557 49,885
Less accumulated depreciation (15,284) (19,420)
--------- ---------
27,273 30,465
Other assets 11,524 8,180
--------- ---------
$ 265,316 $ 239,030
========= =========
See notes to condensed consolidated financial statements.
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WMS INDUSTRIES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)
December 31, June 30,
2000 2000
----------- ---------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 17,048 $ 8,352
Accrued compensation and related benefits 3,029 3,735
Liabilities related to discontinued operations -- 8,242
Accrued income taxes -- 2,956
Other accrued liabilities 11,945 10,325
--------- ---------
Total current liabilities 32,022 33,610
Stockholders' equity:
Preferred stock (5,000,000 shares authorized, none issued) -- --
Common stock (100,000,000 shares authorized,
31,698,477 and 30,920,042 shares issued) 15,849 15,460
Additional paid-in capital 191,267 184,278
Retained earnings 26,560 6,064
--------- ---------
233,676 205,802
Treasury stock, at cost (77,312 shares) (382) (382)
--------- ---------
Total stockholders' equity 233,294 205,420
--------- ---------
$ 265,316 $ 239,030
========= =========
See notes to condensed consolidated financial statements.
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WMS INDUSTRIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
Six Months Ended
December 31,
----------------------------
2000 1999
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 20,496 $ 10,838
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Discontinued operations:
(Income) loss from pinball and cabinets segment (1,616) 13,669
Income from contract manufacturing segment -- (293)
Reversal of excess accrual due to settlement of litigation -- (13,160)
Non-cash loss on corporate relocation 1,971 --
Litigation payment -- (27,000)
Depreciation and amortization 8,442 7,021
Receivables provision 125 370
Deferred income taxes 1,096 14,417
Tax benefit from exercise of stock options 3,676 336
Decrease from changes in operating assets and liabilities (19,697) (8,038)
-------- --------
Net cash provided (used) by continuing operating activities 14,493 (1,840)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (1,485) (1,768)
Additions to gaming machines on participation or lease (12,624) (5,416)
Net change in short-term investments (17,900) (23,800)
-------- --------
Net cash provided (used) by investing activities (32,009) (30,984)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash received on exercise of common stock options 3,702 990
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Pinball and cabinets segment 252 (4,682)
Contract manufacturing segment 746 1,133
-------- --------
Net cash provided (used) by discontinued operations 998 (3,549)
Decrease in cash and cash equivalents (12,816) (35,383)
Cash and cash equivalents at beginning of period 19,869 58,663
-------- --------
Cash and cash equivalents at end of period $ 7,053 $ 23,280
======== ========
See notes to condensed consolidated financial statements.
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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. Operating results for
the quarter and six months ended December 31, 2000 are not necessarily
indicative of the results that may be expected for the fiscal year ending
June 30, 2001. 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, 2000.
2. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
balances, transactions and stockholdings have been eliminated.
Certain prior year balances have been reclassified to conform to the
current year presentation and restated to reflect the contract
manufacturing business as discontinued operations.
3. DISCONTINUED OPERATIONS
On October 25, 1999 (the measurement date), the Company announced the
closing of its pinball and cabinets segment. Accordingly, this segment is
accounted for as a discontinued operation in the accompanying condensed
consolidated financial statements.
Manufacturing activities for the pinball and cabinets segment were
completed by January 2000. Sales of the pinball and cabinets segment were
nil and $2.4 million in the quarter and six months ending December 31,
2000, respectively, and $5.5 million and $13.9 million in the quarter and
six months ending December 31, 1999, respectively. At December 31, 2000,
the assets of the pinball and cabinets segment had been liquidated and all
estimated liabilities had been settled, resulting in a pre-tax reversal of
reserves for costs related to discontinuance of such operations of $2.5
million.
On August 10, 2000 (the measurement date), the Company announced the
closing of its contract manufacturing segment. Accordingly, this segment is
accounted for as a discontinued operation in the accompanying condensed
consolidated financial statements. Manufacturing activities for the
contract manufacturing segment were completed by September 2000. Any
remaining assets, including inventory and equipment, are expected to be
sold or disposed of at the earliest practical date.
Sales of the contract manufacturing segment were nil and $1.0 million in
the quarter and six months ending December 31, 2000, respectively, and $3.0
million and $6.2 million in the quarter and six months ending December 31,
1999, respectively. At December 31, 2000, the assets of the contract
manufacturing segment consisted of trade receivables, inventories, plant
and equipment amounting to $0.2 million after deducting an allowance of
$1.6 million for write-offs to estimated realizable value.
4. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (IN THOUSANDS OF DOLLARS)
Six Months Ended December 31,
2000 1999
---------- -----------
Operating activities
Income taxes paid $ 14,537 $ 5,851
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
As used in this quarterly report on form 10-Q, the terms "we", "us", "our" and
"WMS" mean WMS Industries Inc., a Delaware corporation, and its subsidiaries,
unless the context indicates a different meaning, and the term "common stock"
means our common stock, $0.50 par value per share.
This report contains certain forward looking statements concerning our future
business conditions and outlook based on currently available information that
involves risks and uncertainties. Our actual results could differ materially
from those anticipated in the forward looking statements as a result of these
risks and uncertainties, including, without limitation, the financial strength
of the gaming industry, the expansion of legalized gaming into new markets and
legislative and regulatory changes in existing gaming markets, the development,
introduction and success of new games and new technologies and the ability to
maintain the scheduling of such introductions, our ability to qualify for and
maintain gaming licenses and approvals and other risks more fully described
under "Item 1. Business - Risk Factors" in our Annual Report on Form 10-K for
the year ended June 30, 2000.
SIGNIFICANT EVENTS AND TRENDS
In August 2000, we announced the operations of our contract manufacturing
segment were being discontinued. We completed the windup of this segment in the
second quarter of fiscal 2001. In the fourth quarter of fiscal 2000, we recorded
a $2.8 million pre-tax loss on disposal, including cash expenses of $1.2 million
for severance pay and shut down expenses. We do not anticipate that this
discontinued operation will have a material effect on our liquidity or
operations in future periods. The loss on disposal included about $1.6 million
in non-cash losses from write-downs of receivables, inventory, plant and
equipment to net realizable value. Tax benefits related to the loss on disposal
were estimated to be $1.1 million. The exact amount of the proceeds received and
the loss ultimately recorded will depend upon several factors over the course of
the shut-down period and at the date the sale of the remaining assets is
consummated. Our consolidated financial statements have been restated to reflect
the contract manufacturing segment as a discontinued operation.
In August, 2000, we announced that we would convert our 131,000 square foot
corporate headquarters and manufacturing facility in Chicago to a creative
technology campus where we will conduct all engineering, graphic design and game
development functions. Our corporate headquarters and manufacturing operations
were relocated to our Waukegan, Illinois facility during the December 2000
quarter. We also consolidated our regional warehouses. We anticipate recording
total relocation related charges of $0.07 to $0.09 per diluted share during
fiscal 2001, of which $0.01 was incurred in the September 2000 quarter and
$0.05 was incurred in the December 2000 quarter.
The California marketplace for gaming machines opened in May 2000. In the
December 2000 quarter we received a sales order representing our 3,000th gaming
machine for placement in California. As of December 31, 2000, we had over 300
participation games installed in California.
In the September 2000 quarter, we introduced JUMBLE(R), the first game in our
new Puzzle Pays(TM) series of participation games that will also include
SCRABBLE(R) and PICTIONARY(R). By December 31, 2000, we had received regulatory
approvals for JUMBLE in all major North American gaming jurisdictions. As of
December 19, 2000, the total installed base of JUMBLE exceeded 1,000 units.
LIQUIDITY AND CAPITAL RESOURCES
We believe that cash and cash equivalents and short-term investments of $85.8
million at December 31, 2000, along with the $25.0 million bank revolving line
of credit that extends to August 1, 2001, the $2.0 million bank revolving line
of credit that extends to August 1, 2002, and cash flow from operations will be
adequate to fund the anticipated level of capital expenditures, cash invested in
gaming machines on participation or lease, and increases in the levels of
inventories and receivables required in the operation of our business.
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Cash provided by operating activities before changes in operating assets and
liabilities was $34.2 million for the first six months of fiscal 2001, as
compared to cash provided of $6.2 million in the comparable period of fiscal
2000. The current period's increase in cash provided from operations before
changes in operating assets and liabilities relative to the comparable prior
year's period was due to increased net income in the current period and the
litigation settlement payment of $27.0 million that we made in the previous
period.
The changes in operating assets and liabilities resulted in $19.7 million of
cash outflow for the six months ended December 31, 2000, compared with a cash
outflow of $8.0 million during the comparable prior year period. Cash outflow
for the six months ended December 31, 2000 was primarily due to an increase in
receivables, inventories and current income tax payments, offset, in part, by an
increase in accounts payable from the comparable balances at June 30, 2000. The
increase in accounts receivable is due to significant shipments made in the last
month of the quarter, increased sales volume and higher participation and lease
revenues as compared to the prior year's quarter. We have not experienced
significant bad debt expense in any of the periods represented. The increase in
inventories is due to building a safety stock of finished goods to ensure we
were able to meet customer demand during our relocation to Waukegan, Illinois.
The increase in accounts payable was related to the increase in inventories. The
cash outflow for the six months ended December 31, 1999 was primarily due to an
increase in receivables and inventories offset, in part, by an increase in
accounts payable from the comparable balances at June 30, 1999.
Cash used by investing activities was $32.0 million for the six months ended
December 31, 2000, compared with cash used of $31.0 million for the comparable
prior year period. Cash used for the purchase of property, plant and equipment
for the six months ended December 31, 2000 was $1.5 million compared with $1.8
million for the comparable prior year period. Cash used for additions to gaming
machines on participation or lease was $12.6 million and $5.4 million for the
six months ended December 31, 2000 and 1999, respectively. The increase in the
six months ended December 31, 2000 resulted from an increase of 1,312 units on
participation or lease from June 30, 2000 to December 31, 2000. Net cash of
$17.9 million was used for the purchase of short-term investments for the six
months ended December 31, 2000 compared with $23.8 million used for the purchase
of short-term investments during the comparable prior year period.
Cash provided by financing activities, which was from the exercise of common
stock options, was $3.7 million for the six months ended December 31, 2000
compared with $1.0 million for the prior year's six month period due to a
greater number of option exercises.
For the six months ended December 31, 2000, the discontinued pinball and
cabinets segment provided $0.3 million of cash, and the contract manufacturing
segment provided $0.7 million of cash. For the six months ended December 31,
1999, the pinball and cabinets segment used $4.7 million of cash, and the
contract manufacturing segment provided $1.1 million of cash.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 2000 COMPARED WITH
THREE MONTHS ENDED DECEMBER 31, 1999
Consolidated revenues increased 30.1% to $67.4 million in the quarter ended
December 31, 2000 from $51.8 million in the quarter ended December 31, 1999.
Total revenue increased $15.6 million: $10.8 million from increased machine
sales and $4.8 million from increased participation and lease revenue. We
shipped 5,004 video and reel-type gaming devices in the current quarter,
resulting in product and parts sales of $45.6 million versus 4,301 gaming
devices and $34.8 million of product and parts sales in the comparable prior
year quarter due to the continued market acceptance of new models and the impact
of the opening of the California market. In addition, the average sales price
increased from $7,618 in the prior year's quarter to $8,332 in the current
year's quarter primarily due to a price increase implemented in August 2000 and
a change in sales mix to higher priced products.
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The increase in participation and lease revenue was due to an increase in the
installed base of participation gaming devices for which we had a total of 5,268
units installed at December 31, 2000, compared to 3,518 units installed at
December 31, 1999. The installed base increased due to continued growth in
MONOPOLY(R) brand games and the rollout of the newly introduced
JUMBLE brand game in the December 2000 quarter. Average net win per day for
participation machines decreased from $45.76 in the December 1999 quarter to
$42.98 in the December 2000 quarter. This decrease resulted primarily from the
impact of first introducing JUMBLE in the state of Nevada, which accounted for a
majority of the JUMBLE revenues in the December 2000 quarter, and which, in our
experience, has the lowest average daily rate of any domestic gaming
jurisdiction.
Consolidated gross profit in the quarter ended December 31, 2000 rose 34.3% to
$38.2 million from $28.5 million in the quarter ended December 31, 1999. The
gross margin percentage increased from 54.9% in the quarter ended December 31,
1999 to 56.7% in the quarter ended December 31, 2000. The increase in gross
margin resulted from higher gross profit margins on machine sales, partially
offset by lower gross profit margins on participation and lease revenues. The
gross margin on gaming machine sales increased from 37.9% in the December 1999
quarter to 42.4% in the December 2000 quarter due mainly to increased average
sales prices. The gross profit margin on participation and lease revenues
decreased from 89.6% to 86.6% due to a lower average net win per day for
participation devices coupled with a government mandated decrease in the net win
percentage earned on our video lottery terminals placed in Rhode Island and
Delaware.
Research and development expenses increased $1.6 million, or 63.9%, in the
current quarter to $4.1 million from $2.5 million in the quarter ended December
31, 1999 as we continued to invest in enhancing our product pipeline and product
platform. The increase was primarily due to higher engineering expenditures,
including costs to adapt our games for distribution to international markets.
Selling and administrative expenses increased 18.4% from $11.2 million in the
prior year's quarter to $13.2 million in the current year's quarter as we
increased our cost structure to support our revenue growth.
Corporate relocation expenses of $2.5 million, or $0.05 per diluted share, in
the current year's quarter represent costs associated with the relocation and
centralization of our corporate headquarters, manufacturing, distribution and
warehousing facilities to Waukegan, Illinois. Of the relocation expenses, $2.0
million, or $0.04 per diluted share, was for non-cash charges related to the
writedown of facilities and equipment. These unusual charges are expected to be
partially offset by greater productivity and operating cost efficiencies
realized upon the completion of the relocation. We anticipate total charges
associated with this relocation in the current fiscal year to approximate $0.07
to $0.09 per diluted share.
Depreciation and amortization, which includes amortization of gaming machines
under participation and lease, increased during the current year's quarter to
$4.4 million from $3.8 million in the prior year's quarter due to the increase
in the installed base of participation machines. The average installed base was
4,784 units for the December 2000 quarter, compared to 3,371 units for the
December 1999 quarter.
Operating income was $14.0 million in the current year's quarter, compared to
operating income of $24.2 million in the prior year's quarter. The decrease was
a result of the $13.2 million gain due to the reversal of the excess accrual due
to settlement of litigation in the prior year's quarter, partially offset by
higher revenues and margins in the current year's quarter. In addition, the
financial results of the current year's quarter reflect the pre-tax charge of
$2.5 million from the costs associated with our relocation and centralization of
corporate offices, manufacturing, distribution and warehousing facilities to
Waukegan, Illinois. Operating income, prior to unusual items in both periods,
was $16.5 million in the December 2000 quarter, up 50% compared to $11.0 million
in the prior year quarter.
The provision for income taxes on continuing operations decreased to
$5.8 million in the current year's quarter from $9.4 million in the prior
year's quarter. The decrease was due primarily to higher pre-tax income in the
prior year's quarter due to the $13.2 million gain on the litigation settlement
discussed above. The effective rate was 38.0% in both quarters.
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Income from continuing operations was $9.4 million, or $0.29 per diluted share,
in the current year's quarter, compared to income from continuing operations of
$15.4 million, or $0.49 per diluted share, in the prior year's quarter. The
decrease was a result of the $13.2 million gain due to the reversal of the
excess accrual due to the settlement of litigation in the prior year's quarter,
partially offset by higher revenues and margins in the current year's quarter.
Net income, which includes continuing operations and discontinued operations,
was $11.0 million, or $0.34 per diluted share, for the current year's quarter
compared to net income of $15.6 million, or $0.50 per diluted share, for the
prior year's quarter. The decrease was a result of the $13.2 million gain due to
the reversal of the excess accrual due to the settlement of litigation in the
prior year's quarter, partially offset by higher revenues and margins in the
current year's quarter.
SIX MONTHS ENDED DECEMBER 31, 2000 COMPARED WITH
SIX MONTHS ENDED DECEMBER 31, 1999
Consolidated revenues increased 27.4% to $127.3 million in the six months ended
December 31, 2000, from $99.9 million in the six months ended December 31, 1999.
Total revenue increased $27.4 million: $18.8 million from increased machine
sales and $8.6 million from increased participation and lease revenue. We
shipped 9,563 video and reel type gaming devices in the current six month
period, resulting in product and parts sales of $85.9 million versus 8,384
gaming devices and $67.1 million of product and parts sales in the comparable
prior year period due to the continued market acceptance of new models
introduced over the last twelve months and the impact of the opening of the
California market. In addition, the average sales price increased from $7,553 in
the prior year's six month period to $8,311 in the current year's period
primarily due to a price increase implemented in August 2000 and a change in
sales mix to higher priced products.
The increase in participation and lease revenue resulted from an increase in the
installed base of participation gaming devices for which we had a total of 5,268
units installed at December 31, 2000, compared to 3,518 units installed at
December 31, 1999. Average net win per day for participation machines decreased
from $47.40 for the six month period ended December 31, 1999 to $44.08 for the
six month period ended December 31, 2000 due to an expansion of the installed
base to lower performing locations and the impact of first introducing JUMBLE in
the State of Nevada, which accounted for a majority of the JUMBLE revenues in
the December 2000 quarter, and which, in our experience, has the lowest average
daily rate of any domestic gaming jurisdiction.
Consolidated gross profit in the six month period ended December 31, 2000 rose
28.7% to $72.4 million from $56.3 million in the six month period ended
December 31, 1999. The gross margin percentage increased from 56.3% in the six
month period ended December 31, 1999 to 56.9% in the six month period ended
December 31, 2000. The increase in gross margin resulted from the increase in
gross margin on gaming machine sales from 41.0% in the December 1999 period to
42.9% in the December 2000 period, partially offset by lower gross profit
margins on participation and lease revenues from 87.9% to 85.9% due to a lower
average participation net win per day coupled with a government mandated
decrease in the net win percentage earned on our video lottery terminals placed
in Rhode Island and Delaware.
Research and development expenses increased $2.6 million, or 51.1%, in the
current six month period to $7.6 million from $5.0 million in the six month
period ended December 31, 1999 as we continued to invest in enhancing our
product pipeline and product platform. The increase was primarily due to higher
engineering expenditures, including costs to adapt our games for distribution to
international markets.
Selling and administrative expenses increased 26.1% from $19.9 million in the
prior year's period to $25.1 million in the current year's period as we
increased our cost structure to support our revenue growth.
Corporate relocation expenses of $3.1 million, or $0.06 per diluted share, in
the current year's six month period represent costs associated with the
relocation and centralization of our corporate headquarters, manufacturing,
distribution and warehousing facilities to Waukegan, Illinois. Of the relocation
expenses, $2.0 million, or $0.04 per diluted share, was for non-cash charges
related to the writedown of facilities and equipment.
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These unusual charges are expected to be partially offset by greater
productivity and operating cost efficiencies realized upon the completion of the
relocation. We anticipate total charges associated with this relocation in the
current fiscal year to approximate $0.07 to $0.09 per diluted share.
Depreciation and amortization, which includes amortization of gaming machines
under participation and lease, increased during the current year's six month
period to $8.4 million from $7.0 million in the prior year's period due to the
increase in the installed base of participation machines under lease. The
average installed base was 4,417 units for the December 2000 period, compared to
3,174 units for the December 1999 period.
Operating income was $28.2 million in the current year's period, compared to
operating income of $37.5 million in the prior year's period. The decrease was a
result of the $13.2 million gain due to the reversal of the excess accrual due
to the settlement of litigation in the prior year's period, partially offset by
higher revenues and margins in the current year's period. In addition, the
financial results of the current year's period reflect the pre-tax charge of
$3.1 million from the costs associated with our relocation and centralization of
corporate headquarters, manufacturing, distribution and warehousing facilities
to Waukegan, Illinois. Operating income, prior to unusual items in both periods,
was $31.3 million in the six months ended December 31, 2000, up 28.6% compared
to $24.3 million in the prior year period.
The provision for income taxes on continuing operations decreased to $11.6
million in the current year's period from $14.8 million in the prior year's
period. The decrease was due primarily to lower pre-tax income. The effective
rate was 38.0% in both periods.
Income from continuing operations was $18.9 million, or $0.59 per diluted share,
in the current year's period, compared to income from continuing operations of
$24.2 million, or $0.78 per diluted share, in the prior year's period. The
decrease was a result of the $13.2 million gain discussed above, partially
offset by higher revenues and margins in the current year's period.
Net income, which includes continuing operations and discontinued operations,
was $20.5 million, or $0.64 per diluted share, for the current year's six month
period compared to net income of $10.8 million, or $0.35 per diluted share, for
the prior year's six month period. The increase was a result of higher revenues
and margins in the current year period, together with the $13.2 million gain
discussed above offset by the loss from discontinued operations in the prior
year's period.
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SUPPLEMENTAL DISCLOSURE OF RECLASSIFIED STATEMENTS OF OPERATIONS FOR THE THREE
MONTHS AND NINE MONTHS ENDED MARCH 31, 2000
The statements of operations presented below have been reclassified to conform
to the current year format and treat the contract manufacturing segment as a
discontinued operation.
Three Months Nine Months
Ended Ended
March 31, 2000 March 31, 2000
-------------- --------------
Revenues
Machine sales $ 32,308 $ 99,427
Participation and lease revenue 16,831 49,562
--------- ---------
Total revenues 49,139 148,989
--------- ---------
Costs and expenses
Cost of sales 18,233 58,290
Cost of participation and lease revenue 2,490 6,020
Research and development 3,096 8,140
Selling and administrative 10,369 30,411
Depreciation and amortization 3,633 10,476
Reversal of excess accrual due to settlement of litigation -- (13,160)
--------- ---------
Total costs and expenses 37,821 100,177
--------- ---------
Operating income 11,318 48,812
Interest and other income and expense, net 854 2,414
--------- ---------
Income from continuing operations before income taxes 12,172 51,226
Provision for income taxes 4,625 19,466
--------- ---------
Income from continuing operations 7,547 31,760
Discontinued operations, net of applicable taxes:
Pinball and cabinets segment
Loss for discontinued operations -- (469)
Costs related to discontinuance -- (13,200)
Contract manufacturing segment
Income from discontinued operations 162 456
--------- ---------
Net income $ 7,709 $ 18,547
========= =========
Basic earnings (loss) per share of common stock:
Income from continuing operations $ 0.24 $ 1.04
Income (loss) from discontinued operations 0.01 (0.43)
--------- ---------
Net income $ 0.25 $ 0.61
========= =========
Diluted earnings (loss) per share of common stock:
Income from continuing operations $ 0.24 $ 1.02
Income (loss) from discontinued operations 0.01 (0.43)
--------- ---------
Net income $ 0.25 $ 0.59
========= =========
Shares used in per share calculations:
Basic 30,726 30,562
========= =========
Diluted 31,361 31,236
========= =========
MONOPOLY(R) and SCRABBLE(R) are trademarks of Hasbro, Inc.(R) & (C) 2000,
Hasbro, Inc. All rights reserved. Used with permission.
PICTIONARY(R) is a trademark of Pictionary Incorporated, Nevada, U.S.A.
JUMBLE(R) is a trademark of Tribune Media Services. (C) 2000 Tribune Media
Services. All rights reserved. Used with permission.
12
14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) We held our Annual Meeting of Stockholders on January 23, 2001.
(b) The directors elected at the meeting were:
Nominee For Withheld
---------------------- ---------- ---------
William C. Bartholomay 29,409,687 1,218,369
William E. McKenna 29,846,929 781,127
Norman J. Menell 29,849,529 778,527
Donna B. More 29,543,814 1,084,242
Louis J. Nicastro 29,846,990 781,066
Neil D. Nicastro 29,842,504 785,452
Harvey Reich 29,847,231 780,825
David M. Satz, Jr. 29,845,229 782,827
Ira S. Scheinfeld 28,405,416 1,222,640
(c) Other matters voted upon at the meeting and the results of those votes
were as follows:
1) Approval of the WMS Industries Inc. 2000 Stock Option Plan
For Against Abstain
------------ ---------- ----------
29,422,112 1,145,043 60,901
2) Approval of the appointment of Ernst & Young LLP as independent
auditors for the 2001 fiscal year.
For Against Abstain
------------ ---------- ----------
30,532,341 60,365 35,350
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3(a) Amended and Restated Certificate of Incorporation of WMS dated February
17, 1987; Certificate of Amendment dated January 28, 1993; and
Certificate of Correction dated May 4, 1994, incorporated by reference
to Exhibit 3(a) to our Annual Report on Form 10-K for the year ended
June 30, 1994.
3(b) Certificate of Amendment to the Amended and Restated Certificate of
Incorporation of WMS, as filed with the Secretary of the State of
Delaware of February 25, 1998, incorporated by reference to Exhibit
3(a) to our Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1998.
3(c) Form of Certificate of Designations of Series A Preferred Stock,
incorporated by reference to Exhibit A to the Rights Agreement dated as
of March 5, 1998 between us and The Bank of New York, as Rights Agent,
filed as Exhibit 1 to our registration Statement on Form 8-A (File No.
1-8300) filed March 25, 1998.
3(d) By-Laws of WMS, as amended and restated through June 26,
1996,incorporated by reference to Exhibit 3(b) to our Annual Report on
Form 10-K for the year ended June 30, 1996.
(b) Reports on Form 8-K.
None
SIGNATURES
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.
WMS INDUSTRIES INC.
Dated: February 14, 2001 By: /s/ Scott D. Schweinfurth
Scott D. Schweinfurth
Executive Vice President,
Chief Financial Officer and
Treasurer
(Principal Financial and
Accounting Officer)
13