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WMS Reports Fiscal 2013 Second Quarter Results

Total cash, cash equivalents and restricted cash was $87.8 million at December 31, 2012, and long-term debt was $85.0 million.

Adjusted EBITDA, a non-GAAP financial metric (see reconciliation to net income schedule at the end of this release), decreased to $48.5 million in the December 2012 quarter compared with $57.7 million in the prior-year period. The adjusted EBITDA margin for the December 2012 quarter was 30.8% compared with 35.6% in the year-ago period.

About WMS

WMS serves the gaming industry worldwide by designing, manufacturing and marketing games, video and mechanical reel-spinning gaming machines, video lottery terminals and in gaming operations, which consists of the placement of leased participation gaming machines in legal gaming venues. The Company also develops and markets digital gaming content, products, services and end-to-end solutions that address global online wagering and play-for-fun social, casual and mobile gaming opportunities. WMS also addresses customers’ gaming floor evolution with its WAGE-NET® networked gaming solution, a suite of systems technologies and applications designed to increase customers’ revenue generating capabilities and operational efficiency. More information on WMS can be found at www.wms.com or visit the Company on Facebook ®, Twitter ® or YouTube®.

MONOPOLY is a trademark of Hasbro. Used with permission. ©2013 Hasbro. All rights reserved.

THE WIZARD OF OZ and all related characters and elements are trademarks of and © Turner Entertainment Co. (s13)

This press release contains forward-looking statements concerning our future business performance, strategy, outlook, plans, products and liquidity. Forward-looking statements may be typically identified by such words as “may,” “will,” “should,” “expect,” “anticipate,” “plan,” “likely,” “believe,” “estimate,” “continue,” “project,” and “intend,” among others. These forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from the expectations expressed in the forward-looking statements. Although we believe that the expectations reflected in our forward-looking statements are reasonable, any or all of our forward-looking statements may prove to be incorrect. Consequently, no forward-looking statements may be guaranteed. We undertake no obligation to update such forward looking statements, all of which are made only as of this date, February 6, 2013. Factors which could cause our actual results to differ from those projected or contemplated in any such forward-looking statements include, but are not limited to, the following factors: (1) there is a risk that the acquisition of WMS (“the acquisition”) pursuant to the recently announced merger agreement with Scientific Games may not be consummated, on a timely basis or otherwise; (2) our business may be disrupted while the acquisition by Scientific Games is pending or if the acquisition is not consummated as our ability to transact business with customers, suppliers and other business partners may be adversely affected; (3) it may be difficult for us to retain and recruit employees in vital areas while the acquisition is pending or if it fails; (4) in the event our recently announced acquisition by Scientific Games is not consummated, the price of our stock may be affected; (5) there could be unexpected costs, charges or expenses resulting from the pending acquisition; (6) in connection with the recent implementation of our enterprise resource planning system, there is the risk of inaccurate data or reporting and significant design errors that could have a negative effect on our operating results and impact our ability to manage our business which could constitute significant deficiencies; (7) delay or refusal by regulators to approve our new gaming platforms, cabinet designs, game themes and related hardware and software; (8) changes in regulations or regulatory interpretations that may adversely affect existing product placements or future placements; (9) an inability to introduce in a timely manner new games and gaming machines that achieve and maintain market acceptance; (10) a decrease in the desire of casino customers to upgrade gaming machines or allot floor space to leased or participation games, resulting in reduced demand for our products; (11) a reduction in capital spending or interruption in payments by casino customers associated with business weakness or economic uncertainty that adversely affects our customers' ability to make purchases or pay; (12) a greater-than-expected demand for operating leases by customers over outright product sales or sales financing leases that shift revenue recognition from a single period to the term of such operating leases; (13) a reduction in play levels of our participation games by casino patrons, whether due to economic conditions or increased placements of competitive product; (14) inability of suppliers of key components to timely meet our requirements to fulfill customer orders; (15) increased pricing or promotional competitive activity that adversely affects our average selling price or product revenues; (16) a failure to obtain and maintain our gaming licenses and regulatory approvals; (17) failure of customers or players to adapt to the new technologies that we introduce in new product concepts; (18) a software anomaly or fraudulent manipulation of our gaming machines and software; (19) a failure to obtain the right to use or an inability to adapt to rapid development of new technologies; (20) an infringement claim seeking to restrict our use of material technologies; (21) risks of doing business in international markets, including political and economic instability, terrorist activity, changes in importation and repatriation regulations such as currently experienced in Argentina, and foreign currency fluctuations; and (22) the unfavorable outcome of any legal proceedings in which we may be involved from time to time. These factors and other factors that could cause actual results to differ from expectations are more fully described under “Item 1. Business”, “Item 1A. Risk Factors” and “Legal Proceedings” in our Annual Report on Form 10-K for the year ended June 30, 2012, and our more recent reports filed with the U.S. Securities and Exchange Commission.

WMS INDUSTRIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in millions of U.S. dollars and millions of shares, except per share amounts)

(unaudited)

   

Three Months Ended December 31,

Six Months Ended December 31,

REVENUES: 2012   2011 2012   2011
 
Product sales $ 84.8 $ 97.5 $ 172.8 $ 184.6
Gaming operations   72.7     64.7     143.8     133.2  
Total revenues 157.5 162.2 316.6 317.8
 
COSTS AND EXPENSES:
Cost of product sales (1) 43.2 48.7 84.5 91.5
Cost of gaming operations (1) 13.7 14.4 28.9 28.7
Research and development 26.7 23.7 54.3 48.1
Selling and administrative 37.9 33.2 72.3 71.5
Depreciation and amortization (1) 29.0 21.2 57.0 43.8
Impairment and restructuring charges               9.7  
Total costs and expenses   150.5     141.2     297.0     293.3  
 
OPERATING INCOME 7.0 21.0 19.6 24.5
Interest expense (1.0 ) (0.4 ) (1.7 ) (0.8 )
Interest income and other income and expense, net   3.9     4.2     6.3     6.9  
Income before income taxes 9.9 24.8 24.2 30.6
Provision for income taxes   5.6     8.7     10.6     10.7  
NET INCOME $ 4.3   $ 16.1   $ 13.6   $ 19.9  
 

Earnings per share:

Basic $ 0.08   $ 0.29   $ 0.25   $ 0.36  
Diluted $ 0.08   $ 0.29   $ 0.25   $ 0.35  
Weighted-average common shares:
Basic common stock outstanding   54.5     55.6     54.5     55.9  
Diluted common stock and common stock equivalents   54.6     55.8     54.6     56.2  
 

1) Depreciation and amortization includes the following amounts attributable to cost of product sales and cost of gaming operations:

Cost of product sales $ 2.1 $ 1.4 $ 4.1 $ 2.8
Cost of gaming operations $ 17.8 $ 13.1 $ 35.4 $ 27.2
 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions of U.S. dollars)

(unaudited)

   

Three Months Ended December 31,

Six Months Ended December 31,

2012   2011   2012   2011
 
Net income $ 4.3 $ 16.1 $ 13.6 $ 19.9
Foreign currency translation adjustment, net of taxes   1.2   (2.3 )   4.1   (5.4 )
Total comprehensive income $ 5.5 $ 13.8   $ 17.7 $ 14.5  
 

WMS INDUSTRIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions of U.S. dollars and millions of shares)

   

ASSETS

December 31, 2012

June 30, 2012

CURRENT ASSETS: (unaudited) (audited)
Cash and cash equivalents $ 72.8 $ 62.3

Restricted cash and cash equivalents

  15.0     13.8  
Total cash, cash equivalents and restricted cash 87.8 76.1
Accounts and notes receivable, net of allowances of $8.2 and $6.9, respectively 284.1 282.8
Inventories 55.7 53.3
Other current assets   46.4     40.1  
Total current assets 474.0 452.3
 
NON-CURRENT ASSETS:
Long-term notes receivable, net 78.3 122.3

Gaming operations equipment, net of accumulated depreciation and amortization of $250.6 and $227.1, respectively

122.1 115.7

Property, plant and equipment, net of accumulated depreciation and amortization of $159.1 and $142.0, respectively

236.6 226.7
Intangible assets, net 175.4 178.9
Deferred income tax assets 40.6 39.3
Other assets, net   19.7     18.9  
Total non-current assets   672.7     701.8  
TOTAL ASSETS $ 1,146.7   $ 1,154.1  
 

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:
Accounts payable $ 59.3 $ 84.8
Accrued compensation and related benefits 7.9 9.5
Other accrued liabilities   48.4     76.5  
Total current liabilities 115.6 170.8
 
NON-CURRENT LIABILITIES:
Long-term debt 85.0 60.0

Deferred income tax liabilities

22.7 22.7
Other non-current liabilities   25.1     23.3  
Total non-current liabilities 132.8 106.0
Commitments, contingencies and indemnifications
 
STOCKHOLDERS’ EQUITY:
Preferred stock (5.0 shares authorized, none issued)
Common stock (200.0 shares authorized and 59.7 shares issued) 29.8 29.8
Additional paid-in capital 446.9 443.5
Treasury stock, at cost (5.1 and 4.9 shares, respectively) (144.2 ) (144.1 )
Retained earnings 568.5 554.9
Accumulated other comprehensive loss   (2.7 )   (6.8 )
Total stockholders’ equity   898.3     877.3  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,146.7   $ 1,154.1  
 

WMS INDUSTRIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions of U.S. dollars)

(unaudited)

 

Six Months Ended December 31,

2012   2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 13.6 $ 19.9

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation 47.2 37.1
Amortization of intangible and other assets 17.9 14.2
Share-based compensation 8.0 7.6
Other non-cash items 2.4 10.2
Deferred income taxes (1.3 ) (2.0 )
Tax benefit from exercise of stock options (0.2 )
Change in operating assets and liabilities   (16.6 )   (21.1 )
Net cash provided by operating activities 71.2 65.7
 
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to gaming operations equipment (38.6 ) (35.6 )
Additions to property, plant and equipment (32.9 ) (31.1 )
Payments to acquire or license intangible and other non-current assets   (6.5 )   (6.8 )
Net cash used in investing activities (78.0 ) (73.5 )
 
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under revolving credit facility 63.0 35.0
Repayments of borrowings under revolving credit facility (38.0 )
Purchases of treasury stock (5.0 ) (37.1 )
Additional consideration related to acquisitions (2.6 )
Cash received from exercise of stock options and employee stock purchase plan 1.1 2.1
Debt issuance costs (2.5 )
Tax benefit from exercise of stock options       0.2  
Net cash provided (used) by financing activities 18.5 (2.3 )
Effect of exchange rates on cash and cash equivalents   (1.2 )   (1.3 )
 
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 10.5 (11.4 )
CASH AND CASH EQUIVALENTS, beginning of period   62.3     90.7  
CASH AND CASH EQUIVALENTS, end of period $ 72.8   $ 79.3  
 

WMS INDUSTRIES INC.

Supplemental Data – Earnings per Share

(in millions of U.S. dollars and millions of shares, except per share amounts)

(unaudited)

   
Three Months Ended December 31, Six Months Ended December 31,
    2012   2011   2012   2011
 
Net income $ 4.3 $ 16.1 $ 13.6 $ 19.9
 
Basic weighted average common shares outstanding 54.5 55.6 54.5 55.9
Dilutive effect of stock options 0.0 0.1 0.0 0.2

Dilutive effect of restricted common stock and warrants

  0.1   0.1   0.1   0.1

Diluted weighted average common stock and common stock equivalents

  54.6   55.8   54.6   56.2
Basic earnings per share of common stock $ 0.08 $ 0.29 $ 0.25 $ 0.36
Diluted earnings per share of common stock and common stock equivalents $ 0.08 $ 0.29 $ 0.25 $ 0.35
 

Supplemental Data – Reconciliation of Net Income to Adjusted EBITDA

(in millions of U.S. dollars)

(unaudited)

   
Three Months Ended December 31, Six Months Ended December 31,
    2012   2011   2012   2011
 
Net income $ 4.3   $ 16.1   $ 13.6   $ 19.9  
 
Net income $ 4.3 $ 16.1 $ 13.6 $ 19.9
Depreciation 24.2 17.8 47.2 37.1
Amortization of intangible and other assets 8.9 7.6 17.9 14.2
Provision for income taxes 5.6 8.7 10.6 10.7
Interest expense 1.0 0.4 1.7 0.8
Share-based compensation 3.6 5.0 8.0 7.6
Other non-cash items   0.9     2.1     2.4     10.2  
Adjusted EBITDA $ 48.5   $ 57.7   $ 101.4   $ 100.5  
Adjusted EBITDA margin   30.8 %   35.6 %   32.0 %   31.6 %
 

Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, share-based compensation and other non-cash items, including non-cash impairment and restructuring charges) and adjusted EBITDA margin are supplemental non-GAAP financial metrics used by our management and commonly used by industry analysts to evaluate our financial performance. Adjusted EBITDA and adjusted EBITDA margin provide additional useful information to investors regarding our ability to service debt and are commonly used financial analysis metrics for measuring and comparing gaming companies in areas of liquidity, operating performance, valuation and leverage. Adjusted EBITDA and adjusted EBITDA margin should not be construed as an alternative to operating income (as an indicator of our operating performance) or net cash provided by operating activities (as a measure of liquidity) as determined in accordance with U.S. generally accepted accounting principles. All companies do not calculate adjusted EBITDA and adjusted EBITDA margin in necessarily the same manner, and WMS’ presentation may not be comparable to those presented by other companies.

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