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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
                                   FORM 10-K

                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                    FOR THE FISCAL YEAR ENDED JUNE 30, 2000

                         COMMISSION FILE NUMBER 1-8300

                              WMS INDUSTRIES INC.
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                              <C>
                  DELAWARE                                        36-2814522
       (State or other jurisdiction of              (I.R.S. Employer Identification Number)
       incorporation or organization)

3401 NORTH CALIFORNIA AVE.,CHICAGO, ILLINOIS                         60618
  (Address of principal executive offices)                        (Zip Code)
</TABLE>

Registrant's telephone number, including area code: (773) 961-1111

Securities registered pursuant to Section 12(b) of the Act:

<TABLE>
<CAPTION>
                                                                         NAME OF EACH EXCHANGE
               TITLE OF EACH CLASS                                        ON WHICH REGISTERED
               -------------------                                       ---------------------
<S>                                                 <C>                 <C>
Common Stock, $.50 par value                                            New York Stock Exchange
Stock Purchase Rights pursuant to Rights Agreement                      New York Stock Exchange
</TABLE>

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None.

     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, and (2) has been subject to such filing
requirements for the past 90 days.

Yes  X                No ____

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [X]

     The aggregate market value of the 31,247,360 shares of common stock held by
non-affiliates of the registrant on September 15, 2000 was $529,252,160. Solely
for purposes of this calculation, all shares held by directors and executive
officers of the registrant have been excluded. This exclusion should not be
deemed an admission that these individuals are affiliates of the registrant. On
that date, the number of shares of common stock outstanding (excluding 77,312
shares held as treasury shares) was 31,395,932 shares.
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     As used in this Annual Report on Form 10-K, 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, $.50 par value per share.

     WMS Gaming(R) and Puzzle Pays(TM) are trademarks of our subsidiary WMS
Gaming Inc. Our product names mentioned in this report are trademarks of WMS
Gaming Inc., except where they are licensed. Williams(R), DCS Sound System(R)
and Dotmation(TM)are trademarks of our subsidiary Williams Electronics Games,
Inc. Monopoly(R), Scrabble(R), Chance(R) and Community Chest(R) are trademarks
of Hasbro, Inc. Pictionary(R) is a trademark of Pictionary Incorporated, and
Jumble(R) is a trademark of Tribune Media Services, Inc. The other trademarks
mentioned in this report are the property of their respective owners.

     This report contains "forward-looking statements," within the meaning of
the federal securities laws. These statements describe our beliefs concerning
future business conditions and the outlook for WMS based on currently available
information. Wherever possible, we have identified these forward looking
statements by words such as "may," "will," "expect,"anticipate," "believe,"
"estimate," and similar expressions. Our actual results could differ materially
from those described in the forward-looking statements due to a number of risks
and uncertainties. These risks and uncertainties include:

     - the financial strength of the gaming industry;

     - the actual proceeds and expenses of the disposition of the assets and
       liabilities of our discontinued pinball and cabinets and contract
       manufacturing segments;

     - the expansion of legalized gaming into new markets;

     - legislative and regulatory changes in existing gaming markets;

     - the success of new games and new technologies that we develop and
       introduce;

     - our ability to maintain the scheduling of our planned introductions;

     - software malfunctions discovered after a machine is widely distributed;

     - technical obsolescence of widely used electronic components; and

     - our ability to qualify for and maintain gaming licenses and approvals,

as well as the items set forth under Item 1. Business -- Risk Factors. We do not
intend to update publicly any forward looking statements, whether as a result of
new information, future events or otherwise. Material containing forward looking
statements may be found in the materials set forth under Item 1. Business, Item
3. Legal Proceedings and Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.

                                     PART I

ITEM 1. BUSINESS.

                          DEVELOPMENT OF OUR BUSINESS

     WMS was incorporated in Delaware on November 20, 1974 under the name
Williams Electronics, Inc. and succeeded to the amusement game business that had
been conducted for almost 30 years by our predecessors. We are now focused
exclusively on the design, manufacture and marketing of video and reel-spinning
gaming machines and video lottery terminals.

     We conduct our gaming machine business through our subsidiary WMS Gaming
Inc., which markets its products under the Williams and WMS Gaming trademarks.
Our fiscal year begins on July 1 and ends on June 30. For information about our
revenues, net income and assets, see our Consolidated Financial Statements
included in this report. See also "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations."

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     We have discontinued our contract manufacturing of video games with
operations expected to cease effective September 30, 2000. During fiscal 2000,
we shut down our former pinball game design and manufacturing and cabinet
manufacturing operations. The financial position, results of operations and cash
flows of our former pinball and cabinets business and contract manufacturing
business are reported as discontinued operations in our Consolidated Financial
Statements included in this report.

     Our principal executive offices are located at 3401 North California
Avenue, Chicago, Illinois 60618, and our telephone number is (773) 961-1111. By
the end of calendar year 2000, we expect to move our principal executive offices
and manufacturing operations to 800 S. Northpoint Boulevard, Waukegan, Illinois
60085. We are renovating and expanding our existing Chicago facilities and
expect to complete renovations during calendar year 2001. See "--Design,
Research and Product Development."

                                COMPANY OVERVIEW

     We are a leading designer, manufacturer and marketer of innovative video
and reel spinning gaming machines and video lottery terminals. We seek to
develop gaming machines that offer greater entertainment value than traditional
slot machines and generate greater revenues for casinos and other gaming machine
operators. Our gaming machines incorporate secondary bonus rounds, advanced
graphics, digital sound and engaging game themes, some of which include popular
songs and recognized trademarks. Our gaming machines are installed in all of the
major gaming jurisdictions in the U.S. and in numerous foreign jurisdictions.
Our gaming revenues increased to $216.7 million in fiscal 2000 from $126.0
million in fiscal 1999 and $56.8 million in fiscal 1998.

     In 1997, we introduced Reel 'Em In, our first single-themed, multi-coin,
multi-line video gaming machine that incorporates a secondary bonus game. Our
multi-coin, multi-line gaming machines accept up to 150 coins at a time and have
up to 15 distinct pay lines. In addition, secondary bonusing creates a
"game-within-a-game" that rewards players by offering them a chance to advance
from the primary game to a secondary game. The secondary game also gives the
players additional payoff opportunities and allows them to interact with the
game by choosing from various entertaining options in the bonus round. The
success of Reel 'em In led to our introduction of a series of video gaming
machines based on this design, and a series of reel spinning gaming machines,
each featuring a unique and entertaining theme. See "Products" below. The
multi-coin, multi-line and secondary bonus features and our highly-entertaining
themes are designed to attract new players, encourage repeat play and increase
the average wager per play.

     In fiscal 1999, we introduced a series of four Monopoly-themed gaming
machines that were named the "Most Innovative Gaming Product for 1999" at the
American Gaming, Lodging and Leisure Summit. Since then, we have continued to
introduce additional Monopoly-themed gaming machines. See "Products" below. We
are the exclusive worldwide licensee of the widely-recognized Monopoly trademark
for use on casino-style gaming machines. Since their introduction, these
machines have typically generated average daily revenue significantly in excess
of the average daily revenue of the casinos' other gaming machines. As a result
of their superior earnings, we have been able to offer our Monopoly-themed
gaming machines to casino operators on a revenue participation or daily lease
basis. The revenue participation model allows us to share in the earnings of
these gaming machines, and both models permit us to generate a recurring revenue
stream. As of August 31, 2000, we had an installed base of 4,037 Monopoly-themed
gaming machines.

     In the first quarter of fiscal 2001, we introduced a second series of
revenue participation machines, based on popular licensed puzzle game themes. We
call this series Puzzle Pays. The first game in the Puzzle Pays series is
Jumble, based on the popular scrambled word game appearing in newspapers
nationwide. We began to ship this game to casinos in September 2000. We expect
to introduce two additional Puzzle Pays gaming machines based on popular board
games: Scrabble, in Spring 2001, and Pictionary, in Summer 2001. We have secured
licenses to several more brand names, and we plan to introduce additional games
based on these names.

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                               INDUSTRY OVERVIEW

     We believe that casino operators are focusing on increasing revenue growth
at their existing casinos. The importance of slot revenue to the casino
operators' profitability has created significant demand for gaming machines that
have the ability to generate superior earnings per machine. As a result, the
pace of innovation in gaming machine design has accelerated, and gaming
equipment manufacturers have increasingly focused on enhancing the overall
entertainment value of gaming machines. We believe that the two most significant
developments in gaming machine design have been the development of video gaming
machines that simulate reel spinning slot machines and the introduction of
gaming machines with secondary bonus rounds:

     - Video gaming machines that simulate a reel spinning slot machine on a
       video screen are predominantly multi-coin, multi-line gaming machines
       that offer multiple distinct paylines and allow up to 150 or more coins
       to be wagered on a single play. This tends to increase the average wager
       per play. We believe that multi-coin, multi-line gaming machines are
       currently the fastest growing segment on the casino floor.

     - Secondary bonusing, or the game-within-a-game concept, allows a player to
       advance beyond the primary round into a bonus round if the player obtains
       a certain result in the primary round. The bonus round is designed to
       create significant player appeal by giving the player various unique
       interactive options and a sense of investment in the game. This
       encourages the player to continue to play the machine in an effort to
       achieve the bonus round. In addition, the bonus round gives designers an
       opportunity to incorporate additional entertaining content into the
       gaming machines.

Over the next few years, we expect significant demand for multi-coin, multi-line
video gaming machines and other gaming machines that offer the player secondary
bonus rounds and other enhanced entertainment features, which we believe will
result in higher revenue per machine for casinos.

     Some of the gaming machines with secondary bonusing features and
entertaining themes generate significantly more revenues per day than the older
gaming machines on the casino floors. This has led to another industry trend:
gaming machine manufacturers have been able to lease some of the highest-earning
machines to casino operators on a revenue participation basis or, in
jurisdictions where this is not permitted, for a fixed daily lease fee. This
allows gaming machine manufacturers to share in the superior earnings of these
games and to generate a recurring revenue stream for themselves.

     Video lottery terminals ("VLTs") include both video and reel spinning
gaming machines. VLTs are purchased, leased or operated on a
revenue-participation basis to raise revenue for the jurisdictions where they
are placed. Most VLTs are linked to a central computer for accounting and
security purposes and are monitored by the state lotteries or other government
authorities. Unlike gaming machines designed for the casino market, most VLTs
are located in places where casino-type gaming is not the principal attraction,
such as racetracks, bars and restaurants.

                               BUSINESS STRATEGY

     We intend to increase our market penetration in the major North American
gaming jurisdictions. We also plan to expand distribution to new gaming
jurisdictions and international markets. We seek to increase our market share
and profitability by offering an expanding portfolio of entertaining gaming
machines with higher earning potential. This strategy includes the following
elements:

     - Leverage our strength in developing gaming machines with enhanced
       entertainment value: For over half a century, we have been designing
       successful amusement games with creative and compelling content and the
       latest technology. We believe that this experience allows us to create
       gaming machines that offer significantly greater entertainment value than
       traditional gaming machines. Our gaming machine development teams combine
       the talents of about 150 engineers, designers, artists and musicians. We
       are modifying our Chicago facility to create a state-of-the-art design
       and technology campus and expect to complete renovations during calendar
       year 2001. We believe that we are well-positioned to

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       develop gaming machines that have superior entertainment value and
       generate higher revenue for our customers.

     - Maximize the potential of our participation and leasing arrangements and
       exclusive licenses for use of the Monopoly theme and other well-known
       themes on gaming machines: As the exclusive licensee of the Monopoly name
       for use with gaming machines, we have converted a popular trademark into
       a successful line of superior-earning gaming machines. The success of
       these Monopoly-themed gaming machines has allowed us to lease them to, or
       earn a percentage of their net win from, casino operators, generating a
       recurring revenue stream for us. We have recently introduced an
       additional line of gaming machines that we expect to offer only on a
       recurring revenue basis, which we call Puzzle Pays. We began to ship the
       first game in the Puzzle Pays series, Jumble, in September 2000.

     - Focus on the multi-coin, multi-line video gaming machine market: We
       believe that the fastest growing product on the casino floor is the
       multi-coin, multi-line video gaming machine. We believe that the growth
       of this type of gaming machine will continue because it offers more
       interactive entertainment value and because casino managers wish to
       increase the diversity of the gaming machines on their slot floors. Our
       portfolio of multi-coin, multi-line video gaming machines has established
       us as a leading supplier of this type of video gaming machine. We expect
       to continue to introduce these machines in the future.

     - Pursue expansion into California and international markets: The largest
       new North American market for gaming machines is the State of California,
       which recently approved Native American gaming within the state beginning
       in May 2000. Approximately 57 Native American tribes in California have
       expressed their intention to develop a casino operation. Our goal is to
       obtain a significant share of the California market. In addition, we have
       been moving to obtain licenses to market our games in foreign markets,
       and we are now licensed in 10 Canadian provinces and 18 other foreign
       jurisdictions. We anticipate selling units outside of North America for
       the first time in fiscal 2001. In addition, we believe that we will be
       able to place our first products in Australia, both directly and through
       a license arrangement, beginning in early calendar 2001.

                                    PRODUCTS

     We have established a fast-growing line of video and reel spinning gaming
machines and VLTs incorporating highly-entertaining themes and innovative gaming
features. Our gaming machines' technological features include multiple linked
video monitors and touch-screen video displays for video gaming machines,
advanced graphics, dotmatrix animation ("Dotmation") displays for reel spinning
slot machines, and our digital compression DCS Sound System ("DCS") music,
voice-overs and sound effects. Engaging and humorous themes and a high degree of
player interactivity are incorporated into each of our games, particularly in
the secondary bonus round. We believe that by designing gaming machines that are
fun and interesting to play and incorporate the latest gaming technologies, we
supply gaming machines with superior player appeal.

     Our gaming machines integrate a secondary bonus round with the traditional
gaming machine to create a game-within-a-game for more exciting and interactive
play. As players achieve various milestones in the primary round, they move on
to play a secondary round for additional bonuses. The secondary round gives the
player a sense of investment in the game. The player is encouraged to continue
wagering in the hope of entering the bonus round. The player can win in both the
primary round and the secondary round. In our secondary rounds, the player has
various choices to make regarding the bonus features. For example, in some games
the player can select from a variety of tokens or characters that will be used
to obtain or reveal the bonus. Amusing or familiar graphical and musical themes
add to the player appeal of our gaming machines.

     Monopoly-themed gaming machines. In fiscal 1999, we introduced our first
four Monopoly-themed gaming machines in Las Vegas under an exclusive worldwide
license from Hasbro. Our Monopoly-themed gaming machines were named the "Best
New Slot" of 2000 by the readers of Casino Player magazine and the "Most
Innovative Gaming Product for 1999" at the American Gaming, Lodging and Leisure
Summit in 1999.

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Since then, we have continued to introduce new Monopoly-themed gaming machines.
Our game designers used the actual elements of the Monopoly game to create the
highly interactive and entertaining machines. These elements include Mr.
Monopoly, Chance, Community Chest and the distinctive game board and tokens,
with a big band theme song. As of August 31, 2000, we had an installed based of
4,037 of these gaming machines on a participation or daily lease basis. The
Monopoly-themed gaming machines incorporate secondary bonus rounds and the
entertaining themes described below:

     - Once Around -- a multi-coin, multi-line video gaming machine where the
       player can build houses and hotels on various Monopoly properties to
       increase those properties' bonus round payouts. The player then chooses a
       token that travels around the board landing on various properties to
       collect bonuses.

     - Reel Estate -- a multi-coin, multi-line video gaming machine where the
       player picks a token that travels around the Monopoly board. Collecting
       all the properties in a color group provides a free spin.

     - Advance to Boardwalk -- a reel spinning slot machine that features up to
       six trips around a Monopoly board for bonuses and multipliers.

     - Roll & Win -- a reel spinning slot machine that provides bonus
       multipliers by rolling oversized mechanical dice. The player accumulates
       bonuses by moving around a mini-Monopoly board.

     - Chairman of the Board -- this product is available as either a
       multi-coin, multi-line video gaming machine or a reel spinning slot
       machine. In the bonus round, the player indicates tiles on the video or
       dotmation screen corresponding to spaces on the Monopoly game board.
       Collecting properties provides a bonus, collecting all the properties in
       a color group provides bonuses with a multiplier, and collecting all the
       properties on the board results in a bonus award of 5,000 times the
       amount of the bet. Landing on Luxury Tax or Go to Jail (unless the player
       first collects a Get Out of Jail Free card) ends the bonus round.

     - Movers and Shakers -- a multi-coin, multi-line video gaming machine. The
       player will receive a minimum of three spins in every bonus round. By
       touching the spin icon on the screen, the player causes the token to
       travel from one of the four corner squares to a randomly selected square.
       Mr. Monopoly tosses two dice in the air. Dice combinations may result in
       extra bonuses. If the dice land with a total value of twelve, the
       player's token competes with three other tokens in a race for bonus
       credits. The bonus round will permit up to a maximum of 15 spins.

     Puzzle Pays participation games. In the first quarter of fiscal 2001, we
introduced a second series of revenue participation machines that we call Puzzle
Pays. Each gaming machine in the series is to be based on a popular licensed
puzzle game theme. Our designers are again using second screen bonusing and the
actual elements of these widely recognized puzzle games to create entertaining
gaming machines with the feel and style of the licensed game. The first of these
games, Jumble, was introduced in casinos in September 2000, and additional
gaming machines will follow in 2001, including gaming machines based on the
popular board games, Scrabble and Pictionary. We have also licensed additional
brand names for development into Puzzle Pays gaming machines.

     - Jumble -- This game is the first in our Puzzle Pays series. Jumble
       features two distinct interactive bonus games based on the scrambled word
       game appearing in more than 600 newspapers nationally. The top screen
       displays a traditional Jumble puzzle and beehive. In a first-screen bonus
       round, a bee flies out of the hive and then picks one of the five words
       in the Jumble puzzle. The bee will swap two letters in that word. If the
       bee places one or both of the letters in the correct position to
       unscramble the word, the player is awarded a multiplier. When a word is
       completed, the player picks one of the letters in the word to reveal one
       of the multipliers behind the letters. Alternatively, the queen bee will
       pick a word and automatically unscramble the entire word. The player then
       picks the word bonus in the same manner. In the second-screen bonus
       round, a game show, the player chooses bee characters in the "audience"
       to help solve the Jumble puzzle. Each bee character can help the player
       by giving either a letter in the puzzle or a special tile that increases
       the potential winnings.

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     Multi-coin, multi-line video gaming machines. Our line of multi-coin,
multi-line gaming machines combines advanced graphics, DCS sound effects and
music, secondary bonus rounds and a unique entertaining theme for each game. In
the primary round, the video screen of these gaming machines simulates
traditional reel-spinning slot machines. Depending on the machine, the player
can wager up to 150 coins per play. This line of multi-coin, multi-line gaming
machines includes the following, among others:

     - Money to Burn -- Fire Department theme. Features the song "Fire." In the
       bonus round, the player tries to put out the fire in a building floor by
       floor, earning bonuses with each successful effort.

     - Perfect Game -- Bowling theme. Features first and second screen bonus
       features. The player selects a comical bowler character to bowl five
       frames. If the character bowls strikes, the player accumulates bonuses.

     - Reel 'Em In! Cast for Cash -- Family fishing theme. This game is our
       first to offer new technology with two linked video monitors. Just as in
       our original Reel 'em In game, in the bonus round, the player "goes
       fishing" by choosing a humorous character to hook the bonus fish. The two
       screens allow both an underwater view and above water view
       simultaneously, in addition to numerous game and graphics options.

     - Who Dunnit -- 1940s detective story theme. In the bonus round, the player
       must find the thief by touching suspects on the screen. The faster the
       player solves the crime, the higher the bonus. Additional features,
       including "sidekick," accomplice and pickpocket characters, and a trip to
       the hideout, affect the bonus.

     - Swingin' in the Green -- Vine-swinging jungle hero theme. In the bonus
       round, the player decides which vines the hero, Jungle Jim, will swing on
       to collect treasures and accumulate bonuses.

     - Winning Bid -- Live auction theme. The bonus round simulates a live
       estate auction. The player selects an auction item and a humorous
       character to start the bidding. As the characters raise the bids, the
       bonuses increase.

     - Top Banana -- Caribbean party theme. In the bonus round, the player has
       the option to stack a number of different silly monkeys. The player
       decides when to jump for bananas held by a gorilla in a palm tree. If the
       monkeys get the bananas, the player wins additional bonuses. There is
       also a random multiplier bonus possibility.

     - Instant Winner -- Instant lottery ticket theme. In the bonus round, the
       player selects from six WMS-themed scratch-off tickets and scratches off
       areas of the tickets to reveal the bonus award. There is also a bonus
       "sweepstakes" check if the player obtains three or more sweepstakes
       symbols on adjacent reels.

     - Jackpot Party -- 70's party theme. Features disco music from KC & the
       Sunshine Band and The Village People. In the bonus round, the player
       chooses party gifts for hidden bonuses until he or she hits a party gift
       with one of the "party pooper" characters, which ends the bonus round.

     - Life of Luxury -- Material extravagance theme with numerous betting
       options. In the bonus round, the player receives ten free bonus spins
       while jazz music plays.

     - BOOM! -- Fourth of July backyard barbecue theme. In the bonus round, the
       player selects a rocket that launches into the sky and explodes to reveal
       a bonus.

     - Filthy Rich -- Barnyard theme. In the bonus round, the player chooses
       which mud-caked pig in the pigpen to wash off, revealing the amusing
       bonus pig.

     - Reel 'Em In -- Family fishing theme. In the bonus round, the player "goes
       fishing" by choosing a humorous character to hook the bonus fish.

     Reel spinning slot machines. Our line of reel spinning slot machines
includes Perfect Match, Jackpot Limbo, Jackpot Party, X-Factor, Jackpot Stampede
Deluxe, Pharaoh's Fortune, Big Bang Piggy Bankin' and Winning Streak. Each of
these gaming machines features engaging and entertaining themes. With secondary
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bonusing through the use of our Dotmation feature, a player's game experience is
enhanced with animated sequences such as mermaids diving into the ocean or
genies emerging from magic lamps to present the top awards. These reel spinning
slot machines also feature DCS sound.

     Video Lottery Terminals. Our VLTs include both video and reel spinning
gaming machines. They feature advanced graphics and DCS sound effects and music
and incorporate many of the same features as our other gaming machines. We offer
a variety of multi-game and single-themed VLTs. Our VLTs may be operated as
stand-alone units or may interface with central monitoring computers operated by
governmental agencies. Our VLTs are located in places where casino-type gaming
is not the principal attraction, such as racetracks, bars and restaurants.

     Discontinued Operations. Previously, we also designed and manufactured
pinball games and cabinets. The pinball market, however, declined in recent
years due to the growth of competition from video and other amusement games.
Therefore, in October 1999, we terminated our pinball design and manufacturing
operations and cabinet manufacturing operations. We also previously manufactured
coin-operated video games under a contract with our former subsidiary, Midway
Games Inc. This operation is expected to cease on September 30, 2000.

                    DESIGN, RESEARCH AND PRODUCT DEVELOPMENT

     In designing our gaming machines, our designers, engineers and artists
build upon the more than 50 years of experience that WMS and our predecessors
have in designing and developing fun, humorous and exciting games. We are
continually developing new games in order to broaden our product line, introduce
new technologies and enhance player appeal. Our gaming machines are usually
designed by our internal gaming design teams or in some cases by independent
designers under contract to us. Gaming machines must be approved and sometimes
tested by certain regulatory authorities before being marketed in a particular
gaming jurisdiction. The game design teams operate in a studio environment that
encourages creativity, productivity and cooperation among design teams.

     We are renovating and expanding our existing Chicago research and design
facilities to create a state-of-the-art technology campus. We expect to complete
renovations during calendar year 2001. As of August 31, 2000, we employed about
150 persons in our gaming machine design, research and development teams. During
the fiscal years ended June 30, 2000, 1999 and 1998, we spent approximately
$11.7 million, $8.7 million and $7.8 million, respectively, on design, research
and product development with respect to gaming devices.

     While we primarily seek to develop original proprietary games, some of our
gaming machines are based on popular intellectual properties licensed from third
parties, such as Hasbro and Tribune Media Services. Typically, WMS is obligated
to make minimum guaranteed royalty payments over the term of the license and to
advance payment against those guarantees. In addition, each license typically
provides that the licensor retains the right to exploit the licensed property
for all other purposes, including the right to license the property for use with
other products.

                              SALES AND MARKETING

     We are authorized to sell our gaming machines directly to casinos in 135
North American jurisdictions and in 18 other gaming jurisdictions. Generally, we
sell our gaming machines directly in order to maximize customer service and to
enhance profitability. Our gaming machines are often installed in casinos on a
trial basis, and only after a successful trial period are the machines purchased
by the customers. In addition, we place some of our gaming machines under
revenue-participation or daily rental leases. We sell or lease VLTs, depending
on the jurisdictions where they are placed.

     We sell and lease our gaming machines through about 25 salespeople in
offices in several United States locations, three in a sales office in Spain and
a sales/service consultant in Canada. Our salespeople earn a

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salary and commissions based on sales volume. Our gaming machines are marketed
through trade shows, promotional videotapes, our website and advertising in
trade journals.

     One customer, Harrah's Entertainment, Inc., accounted for about 10.3% of
our revenue in fiscal 2000, and no other customer accounted for greater than 10%
of our revenues. In our opinion, the loss of a single customer would not have a
material adverse effect on our business.

     Export sales of our products were approximately $16.9 million, or 7.8 % of
revenues, for fiscal 2000, compared with $10.6 million, or 8.4% of total
revenues, for fiscal 1999, and $4.6 million, or 8.0% of total revenues, for
fiscal 1998. These figures do not include export sales with respect to
discontinued operations. Substantially all foreign sales are made in United
States dollars.

                                  COMPETITION

     The gaming machine market is intensely competitive and is characterized by
the continuous introduction of new titles and the development of new
technologies. Our ability to compete successfully in this market is based, in
large part, upon our ability to:

     - continually develop new products with player appeal;

     - offer machines that consistently out-perform other gaming machines;

     - identify and obtain rights to commercially marketable intellectual
       properties; and

     - adapt our products for use with new technologies.

     In addition, successful competition in this market is also based upon:

     - price or lease terms;

     - mechanical reliability;

     - brand recognition; and

     - marketing support.

     We estimate that over 25 companies in the world manufacture gaming machines
and VLTs. Our competitors vary in size from very small companies with limited
resources to a few large corporations with greater financial, marketing and
product development resources than ours. The larger competitors have an
advantage in being able to spend large amounts to develop new technologies and
features that are attractive to players and customers. In addition, some of our
competitors have developed and sell or otherwise provide to customers
centralized player tracking and accounting systems which allow casino operators
to accumulate accounting and performance data about the operation of gaming
devices. We do not currently offer these systems. In the video and reel spinning
gaming machine market, we compete with market leader International Game
Technology ("IGT"), as well as Alliance Gaming, Sigma Game, Casino Data Systems,
Silicon Gaming, Atronic Casino Technology, Anchor Gaming, Mikhon Gaming,
ShuffleMaster, Konami and Aristocrat Leisure Systems. In the VLT market, we
compete primarily with IGT, G-Tech Holdings, Anchor and Spielo Gaming
International.

                                 MANUFACTURING

     We manufacture our gaming machines in our facilities in Chicago and
Waukegan, Illinois. As of September 30, 2000, we are discontinuing the
manufacture of Midway's coin-operated video games in our facility in Waukegan,
Illinois. We generally warrant our gaming machines sold in the U.S. for a period
of 90 days. The raw materials used in manufacturing our gaming machines include
various metals, plastics, wood and glass obtained from numerous sources. In
addition, numerous component parts, including electronic subassemblies and video
monitors, are purchased from suppliers. We believe that our sources of supply of
component parts and raw materials are adequate and that alternative sources of
materials are available.

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     WMS has a long cycle from purchase of inventory to collection of cash on
the sale of gaming machines, which is typical in the industry. Manufacturing is
generally based on purchase orders from customers. In some cases, however,
component parts are purchased and assembled into finished goods which are
inventoried in order to be able to quickly fulfill customer orders.

     The relocation of our manufacturing operations will permit us to devote the
bulk of our 236,000 square-foot Waukegan facility to manufacturing our gaming
machines and to consolidate regional warehousing and distribution in Waukegan.
We expect that these changes, expected to be completed by the end of calendar
year 2000, will lead to operating efficiencies.

     With respect to games subject to participation or lease arrangements, at
June 30, 2000, we had a backlog of 550 games ordered, and at June 30, 1999, we
had a backlog of about 560 games ordered. We believe that it is not meaningful
to compare backlog sales orders at the end of fiscal years since the amount of
backlog sales orders varies during the on-going production period for certain
models of gaming machines, which can extend over a period of years.

              PATENT, TRADEMARK, COPYRIGHT AND PRODUCT PROTECTION

     Each gaming machine title may embody a number of separately-protected
intellectual property rights, including trademarks, copyrights and patents. We
generally seek to obtain trademark protection for the names or symbols under
which we market our products and to obtain copyright and patent protection of
our proprietary software and other game innovations. We also rely on trade
secrets and proprietary know-how. See "Risk Factors--We rely on our intellectual
property and proprietary rights." In addition, some of our most popular gaming
machines are based on trademarks and other intellectual properties licensed from
third parties. See "Risk Factors--Our growth may depend in part upon our ability
to obtain licenses to use intellectual properties and licensors' approvals of
new products on a timely basis."

                             GOVERNMENT REGULATION

GENERAL

     The manufacture and distribution of gaming equipment is subject to
extensive federal, state, tribal, local and foreign regulation. Although the
laws and regulations of the various jurisdictions in which we operate vary in
their technical requirements and are subject to amendment from time to time,
virtually all of these jurisdictions require licenses, permits, documentation of
qualification, including evidence of financial stability, and other forms of
approval for companies engaged in the manufacture and distribution of gaming
machines as well as for the officers, directors, major stockholders and key
personnel of those companies.

     We have obtained the required licenses or are otherwise authorized to
manufacture and sell our products to customers in the following domestic gaming
jurisdictions: Arizona, Colorado, Connecticut, Delaware, Illinois, Indiana,
Iowa, Kansas, Louisiana, Michigan, Minnesota, Mississippi, Missouri, Montana,
Nevada, New Jersey, New Mexico, North Dakota, Oregon, Puerto Rico, Rhode Island,
South Dakota, Washington, West Virginia, Wisconsin, Ak-Chin Indian Community,
Bad River Band of Lake Superior Tribe of Chippewa Indians, Bay Mills Indian
Community, Bois Forte Band of Minnesota Chippewa (Nett Lake), Chitimacha Tribe
of Louisiana, Cocopah Tribe, Coushatta Tribe of Louisiana, Crow Creek Sioux
Tribe, Flandreau Santee Sioux Tribe, Fond du Lac Band of Minnesota Chippewa,
Forest County Potowatomi Tribe, Fort McDowell Mohave-Apache Indian Community,
Fort Mojave Indian Tribe, Ft. Yuma Quechan Tribe, Gila River Indian Community,
Grand Portage Band of Minnesota Chippewa, Grand Traverse Band of Ottawa &
Chippewa Indians, Hannahville Indian Community, Ho-Chunk Nation, Iowa Tribe of
Kansas and Nebraska, Jicarilla Apache Gaming Commission, Keweenaw Bay Indian
Community, Kickapoo Tribe of Indians in Kansas, Lac Courte Oreilles, Lac du
Flambeau Band of Lake Superior Chippewa, Lac Vieux Desert Band of Lake Superior
Chippewa Indians, Leech Lake Band of Minnesota Chippewa, Little River Band of
Ottowa Indians, Little Traverse Bay Band of Ottowa Indians, Lower Brule Sioux
Tribe, Lower Sioux Indian Community, Mashantucket Pequot Tribe, Menominee Indian
Tribe of Wisconsin, Mille Lacs Band of Minnesota

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<PAGE>   11

Chippewa, Mississippi Band of Choctaw Indians, Mohegan Indian Tribe, Omaha Tribe
of Nebraska and Iowa, Oneida Tribe of Indians of Wisconsin, Pascua Yaqui Tribe,
Pojoaque Pueblo Tribe, Prairie Band of Potawatomi Indians of Kansas, Prairie
Island Community of the Minnesota Mdewakanton Sioux, Pueblo of Acoma, Pueblo of
Isleta, Pueblo of Laguna, Pueblo of Sandia, Pueblo of San Juan, Pueblo of Santa
Ana, Pueblo of Tesuque, Quechan Indian Tribe, Red Cliff Band of Lake Superior
Chippewa, Red Lake Band of Chippewa Indians, Sac & Fox Nation of Missouri in
Kansas and Nebraska, Sac & Fox Tribe of Mississippi in Iowa, Saginaw Chippewa
Indian Tribe, San Carlos Apache Tribe, San Felipe Pueblo Gaming Regulatory
Commission, Sault Ste. Marie Tribe of Chippewa, Shakopee Mdewakanton Sioux
Community, Sisseton-Wahpeton Sioux Tribe, Sokaogon Chippewa Community, Southern
Ute Indian Tribe, Spirit Lake Sioux Tribe, St. Croix Chippewa Indians of
Wisconsin, Standing Rock Sioux Tribe, Stockbridge-Munsee Community of Mohican
Indians, Taos Pueblo, Tohono O'Odham, Tonto Apache Tribe, Tunica-Biloxi Tribe of
Louisiana, Turtle Mountain Band of Chippewa Indians, Upper Sioux Indian
Community, Ute Mountain Ute Tribe, White Earth Band of Minnesota Chippewa, White
Mountain Apache Tribe, Winnebago Tribe of Nebraska, Yankton Sioux Tribe of South
Dakota, Yavapai-Apache Indian Community.

     In March 2000, the State of California approved a constitutional amendment
that permitted Native American gaming within the state. Approximately 57 Native
American tribes in California have expressed their intention to develop a casino
operation. We are required to be licensed separately by each tribal gaming
commission. Since the initial approval of tribal/state compacts in May 2000, we
have been licensed by the following Native American tribes in California: Agua
Caliente Band of Cahuilla Indians of the Agua Caliente Indian Reservation,
Barona Group of Capitan Grande Band of Mission Indians of the Barona
Reservation, Berry Creek Rancheria of Maidu Indians of California, Cabazon Band
of Cahuilla Mission Indians of the Cabazon Reservation, Cachil DeHe Band of
Wintun Indians of the Colusa Indian Community of the Colusa Rancheria, Elk
Valley Rancheria, Jackson Rancheria of Mi-Wuk Indians of California, Mooretown
Rancheria of Maidu Indians of California, Morongo Band of Cahuilla Mission
Indians of the Morongo Reservations, Pechenga Band of Luiseno Mission Indians of
the Pechenga Reservation, Redding Rancheria, Rumsey Indian Rancheria of Wintun
Indians of California, Santa Rosa Band of Cahuilla Mission Indians of the Santa
Rosa Reservation, Santa Ynez Band of Chumash Mission Indians of the Santa Ynez
Reservation, Soboba Band of Luiseno Mission Indians of the Soboba Reservation,
Sycuan Band of Diegueno Mission Indians of California, Table Mountain Rancheria
of California, Twenty-Nine Palms Band of Luiseno Mission Indians of California
and Viejas (Barron Long) Group of Capitan Grande Band of Mission Indians of the
Viejas Reservation. Although we are also required to be approved by the State of
California, we may conduct business with the tribal casinos prior to obtaining
the necessary state certification.

     We have also obtained the required licenses or are otherwise authorized to
manufacture and sell our products in the following additional gaming
jurisdictions: the Canadian provinces of Alberta, British Columbia, Manitoba,
New Brunswick, Newfoundland, Nova Scotia, Ontario, Prince Edward Island, Quebec
and Saskatchewan; Argentina; Aruba; Victoria and New South Wales in Australia;
the Bahamas; Catalonia in Spain; Chile; Colombia; the Dominican Republic;
France; Greece; Peru; Philippines; Portugal; the Slovak Republic; Slovenia;
Uruguay and Venezuela.

     To date, we have never been denied any necessary governmental
registrations, licenses, permits, findings of suitability or approvals. In
addition, we believe that all registrations, licenses, permits, findings of
suitability or approvals currently required have been applied for or obtained.
We cannot assure you that the required licenses, permits, approvals or findings
of suitability will be given or renewed in the future.

NEVADA REGULATIONS

     The manufacture, sale and distribution of gaming machines for use or play
in Nevada or for distribution outside of Nevada and the operation of slot
machine routes are subject to the Nevada Gaming Control Act and the regulations
promulgated under that act (collectively, the "Nevada Act"). The license as an
operator of a slot machine route permits a licensee to place slot machines and
gaming devices on the premises of other licensees on a participation basis. Our
manufacturing, distributing and slot route operations are subject to licensing
and regulatory control of the Nevada Gaming Commission (the "Nevada
Commission"), the Nevada Gaming Control Board (the "Nevada Board") and, with
respect to the operation of slot machine
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<PAGE>   12

routes, various other local regulatory authorities (all of these authorities are
collectively referred to as the "Nevada Gaming Authorities").

     The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (1) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (2) the establishment and maintenance of responsible accounting
practices and procedures; (3) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs, and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities; (4) the prevention of cheating and
fraudulent practices; (5) providing a source of state and local revenues through
taxation and licensing fees; and (6) the strict regulation of all persons,
locations, practices, associations and activities related to the operation of
licensed gaming establishments and the manufacture and distribution of gaming
devices and associated equipment. A change in these laws, regulations and
procedures could have an adverse effect on our future Nevada operations.

     Certain of our subsidiaries that manufacture and distribute gaming devices
or operate a slot machine route, or which hold stock of a subsidiary which does
so (a "Gaming Subsidiary"), are required to be licensed or registered by the
Nevada Gaming Authorities. The licenses require periodic payments of fees and
taxes and are not transferable. We are registered by the Nevada Commission as a
publicly traded corporation ("Registered Corporation"), and so we are required
periodically to submit detailed financial and operating reports to the Nevada
Commission and to furnish any other information which the Nevada Commission may
require. We have obtained from the Nevada Gaming Authorities the various
registrations, findings of suitability, approvals, permits and licenses
(collectively, "Licenses") required to engage in slot route operations, and the
manufacture, sale and distribution of gaming devices for use or play in Nevada
or for distribution outside of Nevada. We cannot assure you that these Licenses
will not be revoked, suspended, limited or conditioned.

     All gaming devices that are manufactured, sold or distributed for use or
play in Nevada, or for distribution outside of Nevada, must be manufactured by
licensed manufacturers and distributed or sold by licensed distributors. All
gaming devices manufactured for use or play in Nevada must be approved by the
Nevada Commission before sales, distribution or exposure for play. The approval
process for gaming devices includes rigorous testing by the Nevada Board, a
field trial and a determination as to whether the gaming machine meets strict
technical standards that are set forth in the regulations of the Nevada
Commission. Associated equipment (as defined in the Nevada Act) must be
administratively approved by the Chairman of the Nevada Board before it is
distributed for use in Nevada.

     The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, us in order to determine
whether that individual is suitable or should be licensed as a business
associate of a licensee. Officers, directors and certain key employees of our
Gaming Subsidiaries must file license applications with the Nevada Gaming
Authorities. Our officers, directors and key employees who are actively and
directly involved in activities of our Gaming Subsidiaries may be required to be
licensed or found suitable by the Nevada Gaming Authorities. The Nevada Gaming
Authorities may deny an application for licensing for any cause which they deem
reasonable. A finding of suitability is comparable to licensing, and both
require submission of detailed personal financial information followed by a
thorough investigation. The applicant for licensing or a finding of suitability
must pay all the costs of the investigation. Changes in licensed positions must
be reported to the Nevada Gaming Authorities and, in addition to their authority
to deny an application for a finding of suitability or license, the Nevada
Gaming Authorities have jurisdiction to disapprove a change in a corporate
position.

     If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with us, the companies involved would have to sever all
relationships with that person. In addition, the Nevada Gaming Authorities may
require us to terminate the employment of any person who refuses to file
appropriate applications. Determinations of suitability or of questions
pertaining to licensing are not subject to judicial review in Nevada.

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<PAGE>   13

     We are required to submit detailed financial and operating reports to the
Nevada Commission. Substantially all material loans, leases, sales of securities
and similar financing transactions by our Gaming Subsidiaries must be reported
to, and approved by, the Nevada Commission.

     If the Nevada Gaming Authorities were to determine that we violated the
Nevada Act, our Licenses could be limited, conditioned, suspended or revoked,
subject to compliance with certain statutory and regulatory procedures. In
addition, we and the persons involved could be subject to substantial fines for
each separate violation of the Nevada Act at the discretion of the Nevada Gaming
Authorities. The limitation, conditioning or suspension of any License or the
appointment of a supervisor could, and the revocation of any License would,
materially adversely affect our future operations in Nevada.

     Any beneficial holder of our voting securities, regardless of the number of
shares owned, may be required to file applications, be investigated and have
his, her or its suitability as a beneficial holder of our voting securities
determined if the Nevada Commission has reason to believe that ownership would
otherwise be inconsistent with the declared policies of the State of Nevada. The
applicant must pay all costs of investigation incurred by the Nevada Gaming
Authorities in conducting any such investigation.

     The Nevada Act requires any person who acquires beneficial ownership of
more than 5% of our voting securities to report the acquisition to the Nevada
Commission. The Nevada Act requires that beneficial owners of more than 10% of
our voting securities apply to the Nevada Commission for a finding of
suitability within 30 days after the mailing of the written notice by the
Chairman of the Nevada Board requiring that filing. Under certain circumstances,
an "institutional investor," as defined in the Nevada Act, which acquires more
than 10% but not more than 15% of our voting securities may apply to the Nevada
Commission for a waiver of that finding of suitability if the institutional
investor holds the voting securities for investment purposes only. An
institutional investor shall not be deemed to hold voting securities for
investment purposes unless the voting securities were acquired and are held in
the ordinary course of business as an institutional investor and not for the
purpose of causing, directly or indirectly, the election of a majority of the
members of our board of directors, any change in our corporate charter, bylaws,
management, policies or operations, or those of any of our gaming affiliates, or
any other action which the Nevada Commission finds to be inconsistent with
holding our voting securities for investment purposes only. Activities which are
not deemed to be inconsistent with holding voting securities for investment
purposes only include: (1) voting on all matters voted on by stockholders; (2)
making financial and other inquiries of management of the type normally made by
securities analysts for informational purposes and not to cause a change in our
management policies or operations; and (3) other activities that the Nevada
Commission may determine to be consistent with investment intent. If the
beneficial holder of voting securities who must be found suitable is a
corporation, partnership or trust, it must submit detailed business and
financial information including a list of beneficial owners. The applicant is
required to pay all costs of investigation.

     Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Nevada Commission or
the Chairman of the Nevada Board may be found unsuitable. The same restrictions
apply to a record owner if the record owner, after request, fails to identify
the beneficial owner. Any stockholder found unsuitable and who holds, directly
or indirectly, any beneficial ownership of the voting securities of a Registered
Corporation beyond that period of time as may be prescribed by the Nevada
Commission may be guilty of a criminal offense. We are subject to disciplinary
action if, after we receive notice that a person is unsuitable to be a
stockholder or to have any other relationship with us, we: (1) pay that
unsuitable person any dividend or interest upon our voting securities; (2) allow
that person to exercise, directly or indirectly, any voting rights conferred
through securities held by that person; (3) pay remuneration in any form to that
person for services rendered or otherwise; or (4) fail to pursue all lawful
efforts to require the unsuitable person to relinquish voting securities
including, if necessary, the immediate repurchase of the voting securities for
cash at fair market value.

     The Nevada Commission may, in its discretion, require holders of any debt
security of a Registered Corporation to file applications, be investigated and
be found suitable to own the debt security of a Registered Corporation if the
Nevada Commission has reason to believe that ownership of theses securities
would otherwise be inconsistent with the declared policies of the State of
Nevada. If the Nevada Commission

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<PAGE>   14

determines that a person is unsuitable to own that security, then under the
Nevada Act, the Registered Corporation can be sanctioned, including with the
loss of its approvals, if, without the prior approval of the Nevada Commission,
it: (1) pays to the unsuitable person any dividend, interest or any distribution
whatsoever; (2) recognizes any voting right by the unsuitable person in
connection with that security; (3) pays the unsuitable person remuneration in
any form; or (4) makes any payment to the unsuitable person by way of principal,
redemption, conversion, exchange, liquidation or similar transaction.

     We are required to maintain a current stock ledger in the State of Nevada
which may be examined by the Nevada Gaming Authorities at any time. If any
securities are held in trust by an agent or by a nominee, the record holder may
be required to disclose the identity of the beneficial owner to the Nevada
Gaming Authorities. A failure to make this disclosure may be grounds for finding
the record holder unsuitable. We are also required to render maximum assistance
in determining the identity of the beneficial owner. The Nevada Commission has
the power to require that our stock certificates bear a legend indicating that
the securities are subject to the Nevada Act. However, to date, the Nevada
Commission has not imposed this requirement
on us.

     We may not make a public offering of our securities without the prior
approval of the Nevada Commission if the securities or the proceeds therefrom
are intended to be used to construct, acquire or finance gaming facilities in
Nevada, or to retire or extend obligations incurred for these purposes.

     Changes in control of WMS through merger, consolidation, stock or asset
acquisitions, management or consulting agreements, or any act or conduct by a
person whereby he or she obtains control, may not occur without the prior
approval of the Nevada Commission. Entities seeking to acquire control of a
Registered Corporation must satisfy the Nevada Commission and the Nevada Board
in a variety of stringent standards prior to assuming control of the Registered
Corporation. The Nevada Commission may also require controlling stockholders,
officers, directors and other persons having a material relationship or
involvement with the entity proposing to acquire control, to be investigated and
licensed as part of the approval process relating to the transaction.

     The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and corporate defense
tactics affecting Nevada gaming licenses and Registered Corporations that are
affiliated with those operations may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (1) assure the
financial stability of corporate licensees and their affiliates; (2) preserve
the beneficial aspects of conducting business in the corporate form; and (3)
promote a neutral environment for the orderly governance of corporate affairs.
Approvals are, in certain circumstances, required from the Nevada Commission
before we can make exceptional repurchases of voting securities above the
current market price thereof and before a corporate acquisition opposed by
management can be consummated. The Nevada Act also requires prior approval of a
plan of recapitalization proposed by our board of directors in response to a
tender offer made directly to the Registered Corporation's stockholders for the
purpose of acquiring control of the Registered Corporation.

     License fees and taxes computed in various ways depending on the type of
gaming or activity involved are payable to the State of Nevada and to the
counties and cities in which the Nevada licensee's respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either quarterly or annually. Annual fees are also payable to
the State of Nevada for renewal of licenses as a manufacturer, distributor and
operator of a slot machine route.

     Any person who is licensed, required to be licensed, registered, required
to be registered, or is under common control with any such person, and who
proposes to become involved in a gaming venture outside of Nevada, is required
to deposit with the Nevada Board, and thereafter maintain, a revolving fund in
the amount of $10,000 to pay the expenses of investigation by the Nevada Board
of their participation in foreign gaming operations. The revolving fund is
subject to increase or decrease in the discretion of the Nevada Commission.
Thereafter, licensees are required to comply with certain reporting requirements
imposed by the Nevada Act. The Nevada Board may require a licensee to file an
application for a finding of suitability concerning an actual
                                       13
<PAGE>   15

or intended activity or association of the licensee in a foreign gaming
operation. A licensee is also subject to disciplinary action by the Nevada
Commission if the licensee knowingly violates any laws of the foreign
jurisdiction pertaining to the foreign gaming operation, fails to conduct the
foreign gaming operation in accordance with the standards of honesty and
integrity required of Nevada gaming operations, engages in activities that are
harmful to the State of Nevada or its ability to collect gaming taxes and fees,
or employs a person in the foreign operation who has been denied a license or
finding of suitability in Nevada on the ground of personal unsuitability.

RECENT NEVADA LEGISLATION

     In May 1999, legislation became effective in the State of Nevada imposing
additional requirements on persons who provide gaming machines to casino
customers on a revenue participation basis. Among other things, the new law
requires these persons to pay their "full proportionate share" of license fees
and taxes imposed on gaming revenues generated by these participation gaming
machines. Although the law imposes some additional costs upon us, we do not
believe that these costs are material to our business.

     Additionally, in January 2000, the Nevada Commission adopted amendments to
its regulations to establish standards and procedures for the approval of gaming
device themes. The purpose of the amendments is to reduce the attractiveness of
gaming devices to minors. WMS believes that its current and proposed game themes
are acceptable under the revised regulations.

NEW JERSEY REGULATION

     The manufacture, distribution, and operation of gaming machines in New
Jersey are regulated by the New Jersey Casino Control Commission (the "New
Jersey Commission") under the New Jersey Casino Control Act and the regulations
of the New Jersey Commission promulgated thereunder (collectively, the "New
Jersey Act"). Under the New Jersey Act, a company must be licensed as a gaming
related casino service industry ("CSI"), or fulfill other requirements, in order
to manufacture or distribute gaming machines. In order for a CSI license to be
issued or maintained, certain directors, officers, key employees and owners of a
company must be found by the New Jersey Commission to possess by clear and
convincing evidence good character, honesty, integrity and financial stability.

     We have been issued a CSI license by the New Jersey Commission. This
license was issued for a two-year period and, upon proper application and
satisfaction of the same requirements for the initial issuance of a license, may
be renewed for four-year periods. However, the New Jersey Commission has the
discretion to suspend, revoke, or refuse to renew a license if a licensee fails
to continue to satisfy the requirements for licensure or violates the New Jersey
Act.

     In addition, all gaming machines used in New Jersey casinos must be
approved by the New Jersey Commission. In determining whether to approve gaming
machines, the New Jersey Commission will consider various factors, including
design, integrity, fairness, and honesty and may require a field test of the
machine.

MISSISSIPPI

     The manufacture, sale and distribution of gaming devices for use or play in
Mississippi are subject to the Mississippi Gaming Control Act and the
regulations promulgated thereunder (collectively, the "Mississippi Act"). These
activities are subject to the licensing and regulatory control of the
Mississippi Gaming Commission (the "Mississippi Commission") and the Mississippi
State Tax Commission. Although not identical, the Mississippi Act is similar to
the Nevada Act.

     Our license to manufacture and distribute gaming equipment in Mississippi
is not transferable, is issued for a two-year period and must be renewed every
two years. As in Nevada, the Mississippi Commission may investigate and find
suitable any individual who has a material relationship to, or material
involvement with, us, including, but not limited to, record or beneficial
holders of any of our voting securities and any other person whom the
Mississippi Commission determines exercises a significant influence upon our
management or affairs. We are required to maintain a current stock ledger in
Mississippi which may be examined by the

                                       14
<PAGE>   16

Mississippi Commission at any time. Any applicant for a finding of suitability
must pay all investigative fees and costs of the Mississippi Commission in
connection with the investigation.

     The Mississippi Act requires any person who acquires beneficial ownership
of more than 5% of a Registered Corporation's voting securities to report the
acquisition to the Mississippi Commission, and that person may be required to be
found suitable. The Mississippi Act requires that beneficial owners of more than
10% of a Registered Corporation's voting securities apply to the Mississippi
Commission for a finding of suitability. The Mississippi Commission exercises
its discretion to require a finding of suitability of any beneficial owner of
more than 5% of a Registered Corporation's common stock. Under certain
circumstances, an "institutional investor," which acquires more than 5%, but not
more than 10%, of the Registered Corporation's voting securities may apply to
the Mississippi Commission for a waiver of the finding of suitability if the
institutional investor holds the voting securities for investment purposes only
and otherwise meets the regulatory requirements of the institutional investor
waiver provisions.

     We may not make a public offering of our securities without the prior
approval of the Mississippi Commission if the securities or proceeds therefrom
are intended to be used to construct, acquire or finance gaming facilities in
Mississippi, or to retire or extend obligations incurred for these purposes. The
Mississippi Commission has the authority to grant a continuous approval of
securities offerings and has granted this approval to us, subject to an annual
renewal of this approval. All loans by us must be reported to the Mississippi
Commission and certain loans and other stock transactions must be approved in
advance.

     If it were determined that we violated the Mississippi Act, the licenses
that we hold could be limited, conditioned, suspended or revoked, subject to
compliance with statutory and regulatory procedures, which action, if taken,
could materially adversely affect our manufacturing and distribution of gaming
machines.

FEDERAL REGISTRATION

     Any of our subsidiaries that are involved in gaming activities are required
to register annually with the United States Department of Justice, Criminal
Division, in connection with the sale, distribution or operation of Gaming. The
Federal Gambling Devices Act of 1962 makes it unlawful, in general, for a person
to manufacture, deliver or receive gaming machines and components across state
lines or to operate gaming machines unless that person has first registered with
the Attorney General of the United States. We are required to register and renew
our registration annually. We have complied with these registration
requirements. In addition, various record keeping and equipment identification
requirements are imposed by this act. Violation of the Federal Act may result in
seizure and forfeiture of the equipment, as well as other penalties.

REGULATION IN FOREIGN JURISDICTIONS

     Certain foreign countries permit the importation, sale and/or operation of
gaming equipment. Where importation is permitted, some countries prohibit or
restrict the payout feature of the traditional slot machine or limit the
operation of slot machines to a controlled number of casinos or casino-like
locations. Certain jurisdictions in which we operate require the licensing of
gaming machines, gaming machine operators and manufacturers. We and our gaming
machines have been properly licensed and approved or have applied for licensure
and approval in all jurisdictions where our operations require licensure and
approval.

NATIVE AMERICAN GAMING REGULATION

     Numerous Native American tribes have become engaged in or have licensed
gaming activities on Indian lands as a means of generating tribal governmental
revenue. We manufacture and supply gaming equipment for Native American tribes.
Gaming on Native American lands, including the terms and conditions under which
gaming equipment can be sold or leased to Native American tribes, is or may be
subject to regulation under the laws of the tribes, the laws of the host state,
the Indian Gaming Regulatory Act of 1988 ("IGRA"), which is administered by the
National Indian Gaming Commission (the "NIGC") and the Secretary of the U.S.
Department of the Interior (the "Secretary"), and also may be subject to the
provisions of certain statutes relating to contracts with Native American
tribes, which are administered by the Secretary. As a precondition to gaming
involving gaming machines, IGRA requires that the tribe and the state enter into
a
                                       15
<PAGE>   17

written agreement (a "tribal-state compact") that specifically authorizes such
gaming, and that has been approved by the Secretary, with the notice of approval
published in the Federal Register. Tribal-state compacts vary from state to
state. Many require that equipment suppliers meet ongoing registration and
licensing requirements of the state and/or the tribe and some impose background
check requirements on the officers, directors and shareholders of gaming
equipment suppliers. Under IGRA, tribes are required to regulate all commercial
gaming under ordinances approved by the NIGC. These ordinances may impose
standards and technical requirements on main hardware and software and may
impose registration, licensing and background check requirements on gaming
equipment suppliers and their officers, directors and shareholders.

REGULATORY CHANGES AND LICENSE STATUS

     The laws and regulations of the numerous jurisdictions, foreign and
domestic, in which WMS and our gaming subsidiaries do business are subject to
change from time to time. In addition, the license status of WMS and our gaming
subsidiaries with respect to these jurisdictions is subject to change. The
information set forth in this report represents the most current available at
the time of filing.

                                  SEASONALITY

     Sales of gaming machines to casinos are generally strongest in the spring
and slowest in the summer months. In addition, quarterly revenues and net income
may increase when a gaming machine that achieves significant player appeal is
introduced or if gaming is permitted in a significant new jurisdiction.

                                   EMPLOYEES

     At September 8, 2000, we employed approximately 800 persons. Approximately
275 of those employees were represented by the International Brotherhood of
Electrical Workers (the "IBEW"). Our employee base was reduced during fiscal
2000 as a result of the discontinuance of pinball and cabinet manufacturing
operations. Collective bargaining agreements with the IBEW relate to our Chicago
and Waukegan, Illinois manufacturing facilities, and both expire on June 30,
2003. We expect to discontinue manufacturing at our Chicago facility by the end
of 2000, however, and have negotiated a plant closing agreement with the IBEW.
We believe that our relations with our employees are satisfactory.

                               THE MIDWAY SPINOFF

     On April 6, 1998, we distributed to our stockholders all of the Midway
common stock that we owned. Previously, through Midway, we designed, published
and marketed video games. On the date of this spinoff, under our stock option
plans, the WMS stock options held by our directors, officers and other employees
were adjusted, and adjustment payments were made to holders of these options.
See "Item 11. Executive Compensation." The financial position, results of
operations and cash flows of Midway are reported as discontinued operations in
our Consolidated Financial Statements included in this report.

     Prior to the spinoff, in June 1996, Louis J. Nicastro had resigned from his
positions with WMS at the request of our Board of Directors to devote his full
time to the position of Chief Executive Officer of our former subsidiary, WHG
Resorts & Casinos Inc. ("WHG"). In January 1998, WHG was merged with a large
resort and casino company. The Board of Directors, in view of Mr. Nicastro's
experience with WMS and in the industry, invited him to return to WMS as Chief
Executive Officer and President, effective on the date of the Midway spinoff,
when our former Chief Executive Officer and President, Neil D. Nicastro,
resigned from WMS in order to devote substantially all of his business time to
Midway. See "Item 11. Executive Compensation -- Employment Contracts".

     The Board of Directors adopted a rights plan under the Rights Agreement,
dated as of March 5, 1998, between us and The Bank of New York, as Rights Agent,
which became effective on the date of the Midway spinoff. The Rights Agreement
provides that one preferred stock purchase right attaches to each share of our

                                       16
<PAGE>   18

common stock. The rights will expire at the close of business on April 6, 2007,
unless we previously redeem them for nominal consideration prior to
exercisability. The rights become exercisable after a person or group announces
a tender or exchange offer, which, if consummated, would result in that person
or group beneficially owning 15% or more of our common stock. Each right, other
than rights owned by the person acquiring 15% or more, would then entitle the
holder to purchase a number of shares of our common stock having a market value
of twice the exercise price.

                                  RISK FACTORS

     Some of the risks and uncertainties that may cause our operating results to
vary from anticipated results or that may adversely affect our operating results
are as follows:

WE DEPEND ON INTRODUCING NEW GAMING MACHINES THAT ACHIEVE AND MAINTAIN MARKET
ACCEPTANCE.

     Our success depends on developing and successfully marketing new gaming
machines with strong and sustained player appeal. A new machine will be accepted
by casino operators only if we can show that the machine is likely to produce
more revenues to the operator than other machines. Gaming machines are often
installed in casinos on a trial basis, and only after a successful trial period
are the machines purchased by the casinos. If a new product does not achieve
significant market acceptance, we may not recover our development and promotion
costs. In addition, we must continually adapt our products to emerging
technologies. We cannot assure you that we will be able to develop products
using emerging technologies. We cannot assure you that the new products that we
introduce will achieve any significant degree of market acceptance or that the
acceptance will be sustained for any meaningful period.

OUR PROFITABILITY DEPENDS HEAVILY ON RECURRING REVENUE PARTICIPATION AND LEASE
ARRANGEMENTS.

     In fiscal 1999, we began to enter into recurring revenue arrangements,
which are either participation arrangements or other short-term lease
arrangements with casinos for our Monopoly-themed machines. Approximately $67.6
million, or 31.2%, of our gaming revenues in fiscal 2000 and $24.1 million, or
19.1%, of gaming revenues in fiscal 1999 were derived from these leases, while
the rest of our revenues in our gaming segment resulted from gaming machine and
parts sales. In addition, in fiscal 2000, our margins on recurring revenue
arrangements were 87.7%, while our margins on machine sales were 41.5%.
Therefore, our level of recurring revenue arrangements has a significant effect
on our profitability. Gaming machines under recurring revenue arrangements are
replaced by the casinos if they do not meet and sustain revenue expectations.
Therefore, these machines are particularly susceptible to pressure from
competitors, declining popularity and changes in economic conditions and are at
risk of replacement by the casinos, ending the recurring revenues from these
machines. We cannot assure you that our gaming machines will continue to meet
the casinos' revenue requirements. In addition, casinos in certain jurisdictions
have sought and may continue to seek legislation prohibiting or restricting
recurring revenue arrangements. We cannot assure you that the various gaming
jurisdictions will continue to permit recurring revenue arrangements.

THE GAMING MACHINE MARKET IS INTENSELY COMPETITIVE, AND SOME OF OUR COMPETITORS
HAVE ADVANTAGES OVER US.

     The gaming machine business is intensely competitive and is characterized
by the rapid development of new technologies and the continuous introduction of
new products. Some of our competitors are large companies with greater
financial, marketing and product development resources than ours. In addition,
new competitors may enter our key markets. Obtaining space and favorable
placement on casino gaming floors is a competitive factor in our industry.
Competitors with a larger installed base of gaming machines than ours have an
advantage in retaining the most space and best placement. These competitors may
also have the advantage of being able to convert their installed machines to
newer models in order to maintain their share of casino floor space. In
addition, some of our competitors have developed and sell or otherwise provide
to customers centralized player tracking and accounting systems which allow
operators to accumulate accounting and performance data about the operation of
gaming devices. We do not currently offer these systems.

                                       17
<PAGE>   19

PATENT INFRINGEMENT CLAIMS COULD LIMIT OR AFFECT OUR ABILITY TO MARKET SOME OF
OUR CURRENT OR NEW GAMING MACHINES.

     Our competitors have been granted patents covering various gaming machine
features. If our products use processes or other subject matter that is claimed
under these existing patents, or if other companies obtain patents claiming
subject matter that we use, those companies may bring infringement actions
against us. We might then be forced to discontinue the affected products or be
required to obtain licenses from the company holding the patent, if it is
willing to give us a license, to develop, manufacture or market our products. We
also might then be limited in our ability to market new products.

OUR GROWTH MAY DEPEND IN PART UPON OUR ABILITY TO OBTAIN LICENSES TO USE
INTELLECTUAL PROPERTIES AND LICENSORS' APPROVALS OF NEW PRODUCTS ON A TIMELY
BASIS.

     Some of our most popular gaming machines are based on trademarks and other
intellectual properties licensed from third parties. Our future success may
depend upon our ability to obtain licenses for additional popular intellectual
properties. There is competition for these licenses, and we cannot assure you
that we will be successful in acquiring additional intellectual property rights
with significant commercial value on acceptable terms.

     Our intellectual property licenses generally require that we submit new
products developed under licenses to the licensor for approval prior to release.
This approval is generally discretionary. Rejection or delay in approval of a
product by a licensor could have a material adverse effect on our business,
operating results and financial condition.

WE RELY ON OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS.

     Our success may depend in part on our ability to obtain trademark
protection for the names or symbols under which we market our products and to
obtain copyright and patent protection of our proprietary software and other
game innovations. We cannot assure you that we will be able to build and
maintain goodwill in our trademarks or obtain trademark or patent protection,
that any trademark, copyright or issued patent will provide competitive
advantages for us or that our intellectual properties will not be successfully
challenged or circumvented by competitors.

     We also rely on trade secrets and proprietary know-how. We generally enter
into confidentiality agreements with our employees regarding our trade secrets
and proprietary information, but we cannot assure you that the obligation to
maintain the confidentiality of our trade secrets or proprietary information
will be honored. Despite various confidentiality agreements and other trade
secret protections, our trade secrets and proprietary know-how could become
known to, or independently developed by, competitors.

OUR GAMING MACHINE BUSINESS IS HEAVILY REGULATED, AND WE DEPEND ON OUR ABILITY
TO OBTAIN AND MAINTAIN REGULATORY APPROVALS.

     The manufacture and distribution of gaming machines are subject to
extensive federal, state, local and foreign regulations and taxes, and the
governments of the various gaming jurisdictions amend these regulations from
time to time. Virtually all of these jurisdictions require licenses, permits,
documentation of qualification, including evidence of financial stability, and
other forms of approval for manufacturers and distributors of gaming machines
and for their officers, directors, major stockholders and key personnel. The
gaming authorities in some jurisdictions may investigate any individual who has
a material relationship with us and any stockholder to determine whether the
individual or stockholder is acceptable to those gaming authorities. Each of our
gaming machines must be approved in each jurisdiction in which it is placed, and
we cannot assure you that a particular game will be approved in any
jurisdiction. Licenses, approvals or findings of suitability may be revoked,
suspended or conditioned. The revocation or denial of a license in a particular
jurisdiction could adversely affect our ability to obtain or maintain licenses
in other jurisdictions.

     If we fail to seek or do not receive a necessary registration, license,
approval or finding of suitability, we may be prohibited from selling our gaming
machines for use in the jurisdiction or may be required to sell them

                                       18
<PAGE>   20

through other licensed entities at a reduced profit to us. Some jurisdictions
require gaming manufacturers to obtain government approval before engaging in
some transactions, such as business combinations. Obtaining licenses and
approvals can be time consuming and costly. We cannot assure you that we will be
able to obtain all necessary registrations, licenses, permits, approvals or
findings of suitability in a timely manner, or at all. Similarly, we cannot
assure you that our current registrations, licenses, approvals or findings of
suitability will not be revoked, suspended or conditioned. See "Government
Regulation."

     The National Gambling Impact Study Commission (the "NGIC") was created by
the U.S. Congress in 1996 to conduct a comprehensive legal and factual study of
the social and economic impacts of gaming on federal, state, local and Native
American tribal governments and on communities and social institutions. The NGIC
issued a report to the President, Congress, state governors and tribal leaders
containing its findings and conclusions, together with recommendations for
legislation and administrative actions in June 1999. The NGIC report calls for a
pause in the growth of legalized gambling and encourages state and local
governments to form their own gambling study commissions. Although the NGIC has
no regulatory or enforcement powers, its recommendations could result in the
enactment of new laws and the adoption of new regulations that could adversely
impact the gaming industry in general.

WE FACE RISKS ASSOCIATED WITH POTENTIAL BUSINESS ACQUISITIONS.

     We may seek to grow through acquiring other companies, intellectual
property or other assets. Our success with this strategy will depend on our
ability to identify and negotiate attractive investments that will complement or
enhance our business. We cannot assure you that we will be able to:

     - identify and evaluate advantageous acquisition opportunities;

     - control costs and liabilities incurred with the acquisition of new
       businesses or assets;

     - effectively manage growth of operations; or

     - anticipate and evaluate the numerous risks involved in acquiring and
       operating a new business or asset.

     The focus on potential acquisitions could divert our management's resources
from other projects. The acquisition of a costly or unproductive business or
asset could materially and adversely affect our business.

WE DEPEND ON OUR KEY PERSONNEL.

     Our success depends to a significant extent upon the performance of senior
management and on our ability to continue to attract, motivate and retain highly
qualified gaming machine developers. Competition for highly skilled employees
with technical, management, marketing, sales, product design and development and
other specialized training is intense. We cannot assure you that we will be
successful in attracting and retaining these employees. We may also experience
increased costs in order to attract and retain skilled employees.

WE MAY HAVE CONFLICTS OF INTEREST WITH MIDWAY.

     Most of our directors, including Louis J. Nicastro, our Chairman of the
Board and Chief Executive Officer, are directors of Midway. Neil D. Nicastro,
one of our directors and a consultant to WMS, is also the Chairman of the Board,
President, Chief Executive Officer and Chief Operating Officer of Midway. Neil
D. Nicastro is the son of Louis J. Nicastro. In addition, there are various
arrangements still in effect between Midway and WMS. See "Item 13. Certain
Relationships and Related Transactions."

SUMNER REDSTONE OWNS OR CONTROLS ABOUT 25% OF OUR COMMON STOCK AND MAY DISPOSE
OF IT AT ANY TIME.

     Sumner Redstone beneficially owns 8,028,200 shares, or approximately 25.5%,
of our common stock. Mr. Redstone could sell any or all of these shares at any
time on the open market or otherwise. In addition, although Mr. Redstone has
stated that he has no plans to acquire control of WMS, he could change his
position, or could sell his stock to a person who wishes to acquire control of
WMS. We cannot assure you that any such person would agree with our strategy and
business goals described in this report. The sale by
                                       19
<PAGE>   21

Mr. Redstone of a large number of shares could have an adverse effect on the
market price of our common stock. See "Item 13. Certain Relationships and
Related Transactions."

THE USE OF OUR RIGHTS PLAN OR BLANK CHECK PREFERRED STOCK WOULD INHIBIT THE
ACQUISITION OF WMS OR HAVE A DILUTIVE EFFECT ON OUR STOCK.

     Rights plan. Under an agreement with The Bank of New York, as rights agent,
each share of our common stock has an accompanying right to purchase convertible
preferred stock that permits each holder to receive shares of our common stock
at half price. The rights become exercisable if any person or entity that did
not, before the plan was adopted, own 15% or more of our common stock acquires
beneficial ownership of 15% or more of our common stock. We can redeem the
rights at $.01 per right, subject to certain conditions, at any time. The rights
expire in 2007. Our board of directors could use this agreement as an
anti-takeover device to discourage, delay or prevent a change in control of WMS.
The existence of this agreement could adversely affect the market price of our
common stock.

     Blank check preferred stock. Our certificate of incorporation authorizes
the issuance of five million shares of preferred stock with designations, rights
and preferences that may be determined from time to time by the board of
directors. Accordingly, our board has broad power, without stockholder approval,
to issue preferred stock with dividend, liquidation, conversion, voting or other
rights that could adversely affect the voting power or other rights of the
holders of our common stock. Our board of directors could use preferred stock to
discourage, delay or prevent a change in control. Our board has no current
plans, agreements or commitments to issue any shares of preferred stock. The
existence of the blank check preferred stock, however, could adversely affect
the market price of our common stock.

THE SUBSTANTIAL NUMBER OF SHARES AVAILABLE FOR SALE IN THE FUTURE COULD HAVE AN
ADVERSE EFFECT ON THE MARKET PRICE OF OUR COMMON STOCK.

     We have 100 million authorized shares of common stock, of which
approximately 31.4 million shares were issued and outstanding as of September
15, 2000, excluding 77,312 treasury shares. On that date, we also had
outstanding options to purchase an aggregate of approximately 2.9 million shares
of our common stock issuable at an average exercise price of approximately
$10.00 per share. If all of our issued and outstanding stock options were
exercised as of that date, approximately 34.3 million shares of our common stock
would be outstanding. Our board of directors has broad discretion to issue
authorized but unissued shares, including discretion to issue shares in
compensatory and acquisition transactions. In addition, if we seek financing
through the sale of our securities, our then current stockholders may suffer
dilution in their percentage ownership of our common stock. The future issuance,
or even the potential issuance, of shares at a price below the then current
market price may have a depressive effect on the future market price of our
common stock.

OUR STOCK PRICE MAY BE VOLATILE.

     Our stock price has fluctuated between a low of $7.75 and a high of $18.38
in the last 12 months. We may continue to experience volatility in our stock
price.

                                       20
<PAGE>   22

ITEM 2. PROPERTIES.

     The following table sets forth our principal properties, principal use,
approximate floor space and the annual rental and lease expiration date, where
leased, at August 31, 2000.

<TABLE>
<CAPTION>
                                                                                                LEASE
                                      PRINCIPAL             APPROXIMATE        ANNUAL         EXPIRATION
          LOCATION                       USE                SQUARE FEET       RENT ($)         DATE(1)
          --------                    ---------             -----------       --------        ----------
<S>                              <C>                     <C>                  <C>           <C>
3401 N. California Ave.          Principal Office                  129,400      Owned                   --
Chicago, IL                      & Manufacturing
800 S. North Point Rd.           Manufacturing/Office              236,000      Owned                   --
Waukegan, IL
13820 West Business              Warehouse and                      54,107    221,838             01/31/01
Center Drive                     Distribution Center
Green Oaks, IL
1385 Pama Lane                   Office/Warehouse                   40,476    320,570             08/31/05
Las Vegas, NV
2704 W. Roscoe St.               Office/R&D                         28,500      Owned                   --
Chicago, IL
912 E. Park Avenue               Warehouse                          26,800    160,800       month-to-month
Libertyville, IL
Parque Techologico del Valles    Office/Warehouse                   24,143     36,600(2)          12/31/02
08290 Cerdanyola
Barcelona, Spain
350 Commerce Dr.                 Office/Warehouse                   16,500     82,500             09/30/01
Egg Harbor Township, NJ
2033 Swanson Ct.                 Warehouse                          15,000     71,250             09/30/00
Gurnee, IL
5355 Capital Court               Office/Warehouse                    9,600     64,512             07/31/05
Suite 111
Reno, NV
12450 Short Cut Rd.              Office/Warehouse                    8,250     33,600             07/31/02
Biloxi, MS
3950 N.E. 33rd Terrace           Office/Warehouse                    6,600     38,280             04/30/01
Suites 10 and 11
Kansas City, MO
3425 Russell St.                 Office/Warehouse                    3,300     25,800             11/30/02
Detroit, MI
420 Corporate Cir., Suite C      Office/Warehouse                    1,500     18,540             01/15/02
Golden, CO
13 Sheridan Closet Milperra      Office/R&D                            800      8,088(3)          02/05/04
NSW 2214 Australia
313 1/2 Worth Ave., #B-1         Office                                665     17,995             03/31/02
Palm Beach, FL
3812-118 Avenue                  Warehouse                             300        N/A       month-to-month
Edmonton, Alberta Canada
600 N. Pine Island Road          Office                  1 office in suite      9,000             12/31/01
Suite 450-405
Plantation, FL 33324
</TABLE>

                                       21
<PAGE>   23

-------------------------
(1) Under leases that contain renewal options, additional amounts may be payable
    for taxes, insurance, utilities and maintenance.

(2) 7,104,000 pesetas. Converted, for your convenience, at an exchange rate of
    .00515 on September 15, 2000.

(3) 14,840 Australian dollars. Converted, for your convenience, at an exchange
    rate of .545 on September 15, 2000.

     We believe that the facilities listed in the foregoing table are adequate
for our current needs. During periods of increased production, we can operate
some of our facilities on multiple shifts. The production levels can be
increased or decreased on a periodic basis to match the level of incoming
customer orders.

     We own substantially all of the machinery, equipment, tools and dies,
furnishings and fixtures used in our businesses, all of which are adequate for
the purposes intended.

ITEM 3. LEGAL PROCEEDINGS.

     On October 20, 1999, International Game Technology ("IGT") filed a
complaint (No. CV-S-99-1514-LDG-LRL) in the United States District Court for the
District of Nevada against WMS Gaming Inc. and other defendants. The complaint,
as amended in June 2000, alleged that the defendants infringed U.S. patent No.
5,951,397 (the "397 Patent"), entitled "Gaming Machine and Method Using Touch
Screen." In February 2000, WMS filed an answer to the complaint denying IGT's
allegations of infringement of the "397 Patent and raising affirmative defenses
and counterclaims, including claims that IGT violated Federal antitrust laws.

     On September 15, 2000, IGT and WMS settled all pending litigation between
them, including IGT's patent claims and our antitrust counterclaims. The parties
exchanged general releases and covenants not to sue and have agreed, among other
things, to cross license to each other specified gaming related patents. No
payments were made by either party in connection with the settlement.

     We are not currently involved in any legal proceeding that we believe could
have a material adverse effect on us.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     Not applicable.

                                       22
<PAGE>   24

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     Our common stock, $.50 par value, is traded publicly on the New York Stock
Exchange under the symbol "WMS." The following table shows the high and low sale
prices of our common stock for the two most recent fiscal years, as reported on
the NYSE:

<TABLE>
<CAPTION>
                                                                  HIGH        LOW
                                                                  ----        ---
<S>                                                             <C>         <C>
FISCAL YEAR ENDED JUNE 30, 1999
  First Quarter.............................................    8 13/16     3 1/2
  Second Quarter............................................    10 3/8      5
  Third Quarter.............................................    9 7/8       6 15/16
  Fourth Quarter............................................    17          7 1/2
FISCAL YEAR ENDED JUNE 30, 2000
  First Quarter.............................................    16 13/16    10 7/8
  Second Quarter............................................    13 9/16     10 3/8
  Third Quarter.............................................    16          9 3/4
  Fourth Quarter............................................    15 7/16     7 3/4
</TABLE>

     No cash dividends were declared or paid during fiscal 2000 or 1999. The
payment of future cash dividends will depend upon, among other things, our
earnings, anticipated expansion and capital requirements and financial
condition.

     On September 15, 2000, there were approximately 1,100 holders of record of
our common stock.

                                       23
<PAGE>   25

ITEM 6. SELECTED FINANCIAL DATA.

<TABLE>
<CAPTION>
                                                         FISCAL YEAR ENDED JUNE 30,
                                    --------------------------------------------------------------------
                                      2000         1999(1)        1998(1)        1997(1)        1996(1)
                                    --------       --------       --------       --------       --------
                                                  (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                 <C>            <C>            <C>            <C>            <C>
STATEMENT OF OPERATIONS DATA
Revenues..........................  $216,676       $125,956       $ 56,788       $ 33,613       $ 37,523
Operating income (loss)...........    67,984         10,678        (71,250)       (76,319)       (12,614)
Income (loss) from continuing
  operations before income
  taxes...........................    71,438         14,203        (66,840)       (74,101)       (12,215)
Provision (benefit) for income
  taxes...........................    27,016          5,397        (22,891)       (29,123)        (4,816)
Income (loss) from continuing
  operations......................    44,422(2)       8,806(3)     (43,949)(4)    (44,978)(5)     (7,399)(6)
Discontinued operations, net of
  applicable income taxes:
  Pinball and cabinets segment
     Loss from discontinued
       operations -- net..........   (13,539)        (4,332)        (5,103)        (1,819)       (10,353)
  Contract manufacturing segment
     Income (loss) from
       discontinued
       operations -- net..........    (1,077)           779            228             --             --
  Video games segment
     Income from discontinued
       operations -- net..........        --             --         26,746         35,804         25,229
     Gain on initial public
       offering of subsidiary.....        --             --             --         47,771             --
  Hotel and casino segments
     Income (loss) from
       discontinued
       operations -- net..........        --             --             --          3,917         (2,938)
                                    --------       --------       --------       --------       --------
Net income (loss).................  $ 29,806       $  5,253       $(22,078)      $ 40,695       $  4,539
                                    ========       ========       ========       ========       ========
Basic earnings per share of common
  stock:
  Income (loss) from continuing
     operations...................  $   1.45(2)    $   0.30(3)    $  (1.66)(4)   $  (1.85)(5)   $  (0.31)(6)
                                    --------       --------       --------       --------       --------
  Net income (loss)...............  $   0.97       $   0.18       $  (0.84)      $   1.67       $   0.19
                                    --------       --------       --------       --------       --------
Basic shares outstanding..........    30,615         29,308         26,446         24,334         24,122
                                    --------       --------       --------       --------       --------
Diluted earnings per share of
  common stock:
  Income (loss) from continuing
     operations...................  $   1.42(2)    $   0.30(3)    $  (1.66)(4)   $  (1.85)(5)   $  (0.31)(6)
                                    --------       --------       --------       --------       --------
  Net income (loss)...............  $   0.95       $   0.18       $  (0.84)      $   1.67       $   0.19
                                    --------       --------       --------       --------       --------
Diluted shares outstanding........    31,322         29,511         26,446         24,334         24,122
                                    --------       --------       --------       --------       --------
</TABLE>

<TABLE>
<CAPTION>
                                                               AS OF JUNE 30,
                                    --------------------------------------------------------------------
                                      2000           1999           1998           1997           1996
                                    --------       --------       --------       --------       --------
<S>                                 <C>            <C>            <C>            <C>            <C>
BALANCE SHEET DATA
Total assets......................  $239,030       $238,079       $207,522       $306,915       $295,071
Working capital...................   149,966        117,369         99,132         86,176        143,372
Long-term debt....................        --             --             --         57,500         57,500
Stockholders' equity..............   205,420        172,079        155,291        196,000        210,033
</TABLE>

                                       24
<PAGE>   26

-------------------------
(1) All prior year selected financial data are restated to reflect the pinball
    and cabinets segment and contract manufacturing segment as discontinued
    operations. See Notes 1 and 3 in the Notes to our Consolidated Financial
    Statements.

(2) Income from continuing operations for fiscal 2000 includes an after-tax
    reversal of an excess accrual of $9.7 million, or $0.31 per diluted share,
    related to patent litigation and an after-tax charge of $1.2 million, or
    $0.04 per diluted share, from the Midway spin-off related adjustment to WMS
    common stock purchase options outstanding at the date of the spinoff that
    subsequently vested.

(3) Income from continuing operations for fiscal 1999 includes an after-tax
    charge of $1.9 million, or $0.06 per share, from the Midway spin-off related
    adjustment to WMS common stock purchase options outstanding at the date of
    the spinoff that subsequently vested.

(4) Loss from continuing operations for fiscal 1998 includes an after-tax charge
    of $39.9 million, or $1.51 per share, from the Midway spin-off related
    adjustment to WMS common stock purchase options outstanding at the date of
    the spinoff.

(5) Loss from continuing operations for fiscal 1997 includes an after-tax charge
    of $37.4 million, or $1.54 per share, related to patent litigation.

(6) Loss from continuing operations for fiscal 1996 includes additional
    after-tax provisions for gaming inventory obsolescence of $1.3 million, or
    $0.05 per share.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

FISCAL 2000 SIGNIFICANT EVENTS AND TRENDS

     In October 1999, we announced that we had decided to close our pinball and
cabinets segment as part of a plan to focus on our gaming segment. We expect to
complete the windup of this segment by September 30, 2000. In the first quarter,
we recorded a $21.3 million pre-tax loss on disposal, including cash expenses of
$10.1 million for projected operating losses through the disposal date,
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 $11.2 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 $8.1 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 pinball and cabinets segment as a discontinued operation.

     In December 1999, we announced that we had settled our litigation with
International Game Technology regarding their Telnaes patent. We made a
tax-deductible payment of $27.0 million to them and agreed to split evenly with
them the $3.4 million held in an escrow account pending resolution of this
matter. Because we had previously recorded a reserve of $38.5 million for this
litigation, we recognized pre-tax income of $13.2 million from the reversal of
the excess accrual. We also recognized $2.4 million of pre-tax income in the
June 2000 quarter primarily due to a recovery from our original lawyer's
insurance related to the litigation. This resulted in an increase in income from
continuing operations, on an after-tax basis, of $9.7 million, or $0.31 per
diluted share.

     In August 2000, we announced that the operations of our contract
manufacturing segment were being discontinued. We expect to complete the windup
of this segment by mid-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.

                                       25
<PAGE>   27

LIQUIDITY AND CAPITAL RESOURCES

     We believe that cash and cash equivalents and short term investments of
$80.7 million at June 30, 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.

     Cash provided by operating activities before changes in operating assets
and liabilities was $31.4 million for fiscal 2000 as compared with cash provided
of $21.6 million for fiscal 1999. The increase in cash provided by operating
activities in fiscal 2000, compared to fiscal 1999, was due to increased net
income, net of the effects of non-cash charges and credits. This was partially
offset by the litigation settlement payment made in fiscal 2000.

     The changes in operating assets and liabilities resulted in $3.8 million of
cash inflow during fiscal 2000 compared with a cash outflow of $0.1 million
during fiscal 1999. Cash inflow in fiscal 2000 was primarily due to a decrease
in inventories and income taxes receivable, an increase in income taxes payable
on continuing operations and increases in accounts payable and accruals, offset,
in part, by an increase in accounts receivable from the comparable balances at
June 30, 1999. The cash outflow for fiscal 1999 was primarily due to an increase
in receivables and inventory, offset, in part, by a reduction in income tax
receivables and an increase in accounts payable and accruals from the comparable
balances at June 30, 1998.

     Cash used by investing activities was $72.7 million for fiscal 2000
compared with cash used of $3.3 million for fiscal 1999. Cash used for the
purchase of property, plant and equipment during fiscal 2000 was $3.1 million
compared with $9.1 million for fiscal 1999. Cash used for additions to gaming
machines on participation or lease was $8.9 million in fiscal 2000 compared with
$20.2 million in fiscal 1999. Net cash of $60.8 million was used for the
purchase of short-term investments during fiscal 2000 compared with $26.0
million provided from the sale of short-term investments in fiscal 1999.

     Cash provided by financing activities, which was primarily from common
stock option proceeds, was $1.6 million for fiscal 2000 compared with $7.9
million for fiscal 1999.

RESULTS OF OPERATIONS

  Fiscal 2000 Compared with Fiscal 1999

     Consolidated revenues increased to $216.7 million, or 72.0%, in fiscal 2000
from $126.0 million in fiscal 1999. Total revenue increased $90.7 million; $47.2
million from increased machine sales and $43.5 million from increased
participation and lease revenue. The increase in revenue from machine sales
results primarily from the sale of 17,789 video and reel type gaming devices in
fiscal 2000 compared to 13,582 gaming devices in fiscal 1999, due to the
continued market acceptance of new models introduced over the last twelve
months. In addition, the average sales price increased from $7,232 in fiscal
1999 to $7,904 in fiscal 2000 primarily due to a price increase implemented in
August 1999 and a change in product mix to sales of higher priced products.

     The increase in participation and lease revenue was from an increase in the
installed base of Monopoly-themed gaming devices which were introduced in fiscal
1999 and had a total of 2,715 units installed at June 30, 1999 and 3,956 units
installed at June 30, 2000. Average net win per day for Monopoly-themed machines
decreased from $50.77 in fiscal 1999 to $47.32 in fiscal 2000 due to an
expansion of the installed base to lower performing locations in gaming
jurisdictions where we participate in the net win of the location.

     Consolidated gross profit for fiscal 2000 rose to $121.1 million, or
117.5%, from $55.7 million in fiscal 1999. The gross margin percentage increased
from 44.2% in fiscal 1999 to 55.9% in fiscal 2000. The increase in gross margin
resulted from higher average sales prices, a greater percentage of higher margin
participation and lease revenues compared to total revenues in the June 2000
fiscal year, the impact of higher utilization of our manufacturing facility and
lower material costs.

                                       26
<PAGE>   28

     Research and development expenses increased during fiscal 2000 to $11.7
million from $8.7 million in the prior year as we continue to invest in
enhancing our product pipeline and product platform. The increase is due to
higher engineering expenditures, including costs to adapt our games for
distribution to international markets. During fiscal 2000, we introduced six new
games for sale and two new Monopoly participation games. Research and
development expenses in fiscal 2000 also were incurred for a new participation
game, Jumble, which was introduced in the first quarter of fiscal 2001. During
fiscal 1999, we introduced seven new games for sale and the first four versions
of our Monopoly participation games.

     Selling and administrative expenses increased 49.1% from $27.3 million in
fiscal 1999 to $40.8 million in fiscal 2000 as we increased our cost structure
to support our 72.0% revenue growth. The increase in expenses included a higher
number of sales and administrative staff and expenses associated with opening
our international sales office in Barcelona, Spain.

     Depreciation and amortization, which includes amortization of gaming
machines under participation and lease, increased during fiscal 2000 to $14.3
million from $5.9 million in the prior year due to the increase in the installed
base of Monopoly machines. The average installed base was 3,366 units for fiscal
2000, compared to 895 units for fiscal 1999.

     Operating income was $68.0 million in fiscal 2000, compared to operating
income of $10.7 million in fiscal 1999. The financial results of fiscal 2000
reflect a one-time pre-tax gain of $15.6 million from the reversal of the excess
accrual related to the settlement of litigation. The balance of the increase was
a result of higher revenues and margins, partially offset by the increases in
research and development, depreciation and amortization and selling and
administrative expenses.

     The provision for income taxes increased $21.6 million, to $27.0 million in
fiscal 2000 from $5.4 million in fiscal 1999. The increase was due primarily to
higher pre-tax income. The effective tax rate was 37.8% in fiscal 2000, compared
to 38.0% in fiscal 1999 due to a lower effective state tax rate in fiscal 2000.

     Income from continuing operations was $44.4 million, or $1.42 per diluted
share, in fiscal 2000, compared to income from continuing operations of $8.8
million, or $0.30 per diluted share, in fiscal 1999. The financial results of
fiscal 2000 reflect a one-time pre-tax gain of $15.6 million from the reversal
of the excess accrual related to the settlement of litigation, resulting in an
increase in income from continuing operations of $9.7 million, or $0.31 per
diluted share. The balance of the increase was a result of higher revenues and
margins, partially offset by the increases in research and development,
depreciation and amortization, selling and administrative expenses and income
tax expense.

     Net income, which includes continuing operations and discontinued
operations in fiscal 2000 and 1999, was $29.8 million, or $0.95 per diluted
share, for fiscal 2000 compared to net income of $5.3 million, or $0.18 per
diluted share, for fiscal 1999. Spin-off related adjustments to previously
outstanding WMS stock options that subsequently vested reduced net income for
fiscal 2000 and 1999 by $1.2 million and $1.9 million respectively, or $0.04 and
$0.06 per diluted share, respectively.

  Fiscal 1999 Compared with Fiscal 1998

     Consolidated revenues increased to $126.0 million, or 121.8%, in fiscal
1999 from $56.8 million in fiscal 1998. Total revenue increased $69.2 million;
$53.1 million from increases in machine sales and $16.1 million from increased
participation and lease revenue. The increase in revenues from machine sales
results primarily from the sale of 13,582 video and reel type gaming devices in
fiscal 1999 compared to 7,207 gaming devices in fiscal 1998, because of the
continued market acceptance of new models introduced over that twelve month
period. In addition the average sales price increased from $6,703 in fiscal 1998
to $7,232 in fiscal 1999 primarily due to a price increase implemented in August
1998.

     The increase in participation and lease revenue was due to Monopoly-themed
gaming devices which were introduced in the second quarter of fiscal 1999 and
had a total of 2,715 units installed at June 30, 1999. Average net win per day
for Monopoly-themed machines was $50.77 in fiscal 1999.

                                       27
<PAGE>   29

     Consolidated gross profit for fiscal 1999 rose to $55.7 million, or 187.8%,
from $19.3 million in fiscal 1998. The gross margin percentage increased from
34.1% in fiscal 1998 to 44.2% in fiscal 1999. The increase in gross margin
resulted from higher average sales prices, and a greater percentage of higher
margin participation and lease revenues to total revenues in fiscal 1999.

     Research and development expenses increased during fiscal 1999 to $8.7
million from $7.8 million in the prior year as we continued to invest in
enhancing our product pipeline and product platform. During fiscal 1999, we
introduced seven new games for sale and the first four versions of our Monopoly
participation games.

     Selling and administrative expenses increased from $20.4 million in fiscal
1998 to $27.3 million in fiscal 1999 as we increased our cost structure to
support revenue growth.

     Depreciation and amortization, which includes amortization of gaming
machines under participation and lease, increased during fiscal 1999 to $5.9
million from $2.5 million in the prior year due to the increase in the installed
base of Monopoly machines. The average installed base was 895 units for the
fiscal 1999, while we had no games installed during fiscal 1998.

     Operating income was $10.7 million in fiscal 1999, compared to an operating
loss of $71.3 million in fiscal 1998. The financial results of fiscal 1998
reflect a one-time charge of $59.9 million from the adjustment to common stock
options as a result of the Midway spinoff. The balance of the increase in fiscal
1999 operating income was a result of higher revenues and margins, partially
offset by the increases in research and development, depreciation and
amortization and selling and administrative expenses.

     The provision for income taxes increased to $5.4 million in fiscal 1999,
compared to a tax benefit of $22.9 million in fiscal 1998. The tax expense for
fiscal 1999 was based on pre-tax income of $14.2 million, resulting in a 38%
effective tax rate. The tax benefit for fiscal 1998 was based on a pre-tax loss
of $66.8 million, resulting in a 34.2% effective tax rate. The increase in the
effective tax rate was due to higher state taxes, partially offset by the
dividend received deduction on our investment income.

     Income from continuing operations was $8.8 million, or $0.30 per diluted
share, in fiscal 1999, compared to a loss from continuing operations of $43.9
million, or $1.66 per diluted share, in fiscal 1998. The increase was mainly a
result of the impact of the stock option adjustment described above in fiscal
1998. The balance of the increase was a result of higher revenues and margins,
partially offset by the increases in research and development, depreciation and
amortization and selling and administrative expenses in fiscal 1999.

     Net income, which includes continuing operations and discontinued
operations in fiscal 1999 and 1998, was $5.3 million, or $0.18 per diluted
share, for fiscal 1999 compared to a net loss of $22.1 million, or $0.84 per
diluted share, for fiscal 1998. Spin-off related adjustments to previously
outstanding WMS stock options that subsequently vested reduced net income for
fiscal 1999 by $1.9 million, or $0.06 per diluted share and $39.9 million, or
$1.51 per diluted share for fiscal 1998.

IMPACT OF INFLATION

     During the past three years, the general level of inflation affecting us
has been relatively low. Our ability to pass on future cost increases in the
form of higher sales prices will continue to be dependent on the prevailing
competitive environment and the acceptance of our products in the marketplace.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

     Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     Our Consolidated Financial Statements are included in this report
immediately following Part IV.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

     None.

                                       28
<PAGE>   30

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     (a) Identification of Directors. Except as set forth below, the directors
listed in the following table were elected to serve until the 2001 Annual
Meeting of Stockholders and until their respective successors are duly elected
and qualify. All are present directors of WMS. Neil D. Nicastro is the son of
Louis J. Nicastro. Otherwise, there is no family relationship between any of our
directors or executive officers.

<TABLE>
<CAPTION>
                                                                                SHARES OF
                                                                               COMMON STOCK      PERCENTAGE
                                                                 DIRECTOR OR   DEEMED TO BE          OF
                                        POSITION(S) WITH          EXECUTIVE    BENEFICIALLY      OUTSTANDING
                                             WMS AND             OFFICER OF      OWNED AT          COMMON
DIRECTOR (AGE)                        PRINCIPAL OCCUPATION        WMS SINCE    09/15/00(1)        STOCK(2)
--------------                        --------------------       -----------   ------------      -----------
<S>                               <C>                            <C>           <C>               <C>
Louis J. Nicastro (72)..........  Chairman of the Board of           1974       8,582,832(3)        26.9%
                                    Directors, and Chief
                                    Executive Officer of WMS
Norman J. Menell (68)...........  Vice Chairman of the Board of      1980         100,902(4)           *
                                    WMS
William C. Bartholomay (72).....  Director of WMS and President      1981         117,486(4)           *
                                    of Near North National
                                    Group
William E. McKenna (81).........  Director of WMS and General        1981         101,280(4)           *
                                    Partner, MCK Investment
                                    Company
Donna B. More (42)..............  Director of WMS and Attorney,      2000          50,000(5)           *
                                    More Law Group
Neil D. Nicastro (43)...........  Director of WMS, President,        1986       8,053,214(6)        25.6%
                                    Chief Executive Officer and
                                    Chief Operating Officer of
                                    Midway
Harvey Reich (71)...............  Director of WMS and Attorney       1983          74,876(7)           *
David M. Satz, Jr. (74).........  Director of WMS and Attorney,      1998          76,000(8)           *
                                    Saiber Schlesinger Satz &
                                    Goldstein
Ira S. Sheinfeld (62)...........  Director of WMS and Attorney,      1993         143,930(9)           *
                                    Squadron, Ellenoff, Plesent
                                    & Sheinfeld LLP
</TABLE>

-------------------------
 *  Less than 1%.

(1) Under Rule 13d-3(d)(1) of the Securities Exchange Act of 1934, shares
    underlying options are considered to be beneficially owned if the holder of
    the option has the right to acquire beneficial ownership of the shares
    within 60 days.

(2) Based on 31,395,932 shares outstanding on September 15, 2000.

(3) Includes 8,028,200 shares owned by Sumner M. Redstone and National
    Amusements, Inc. for which the reporting person has shared voting power but
    no dispositive power. Also includes 500,000 shares that Mr. Nicastro may
    acquire upon the exercise of stock options. For a discussion concerning the
    shared voting power with respect to the 8,028,200 shares referred to above,
    see "Item 12. Security Ownership of Certain Beneficial Owners and
    Management -- Voting Proxy Agreement".

(4) Includes 87,955 shares underlying options.

(5) Includes 50,000 shares underlying stock options.

(6) Includes 8,028,200 shares owned by Sumner M. Redstone and National
    Amusements, Inc. for that the reporting person has shared voting power but
    no dispositive power. Also includes 25,000 shares underlying stock options.
    See "Item 12. Security Ownership of Certain Beneficial Owners and
    Management -- Voting Proxy Agreement" below.

                                       29
<PAGE>   31

(7) Includes 62,955 shares underlying stock options.

(8) Includes 75,000 shares underlying stock options.

(9) Includes 125,728 shares underlying stock options.

     Louis J. Nicastro has been our President and Chief Executive Officer since
April 1998 and was also President from April 1998 to April 2000. He has served
as our Chairman of the Board since our incorporation in 1974. From 1983 to
January 1998, Mr. Nicastro was also the Chairman of the Board and Chief
Executive Officer of WHG Resorts & Casinos Inc. ("WHG"). Mr. Nicastro has also
served as our Chief Executive Officer or Co-Chief Executive Officer from 1974 to
June 1996 and President (1985-1988 and 1990-1991), among other positions. Mr.
Nicastro is a director of Midway, and he held executive positions for Midway
from 1988 until June 1996. Mr. Nicastro is Neil D. Nicastro's father.

     Norman J. Menell has been Vice Chairman of the Board since 1990 and a
director since 1980. He has also served as our President (1988-1990), Chief
Operating Officer (1986-1990) and Executive Vice President (1981-1988). Mr.
Menell is also a director of Midway.

     William C. Bartholomay is President of Near North National Group, insurance
brokers in Chicago, Illinois and Chairman of the Board of the Atlanta Braves. He
has served as Vice Chairman of Turner Broadcasting System, Inc., a division of
Time Warner Inc., for more than five years. Mr. Bartholomay was elected a
director of WMS in 1981. Mr. Bartholomay is also a director of Midway.

     William E. McKenna has served as a General Partner of MCK Investment
Company, Beverly Hills, California for more than five years. He also is a
director of Midway, California Amplifier, Inc., Drexler Technology Corporation
and Safeguard Health Enterprises, Inc. Mr. McKenna has served as a director of
WMS since 1981.

     Donna B. More became a director of WMS in May 2000. She is the principal
partner in the More Law Group, which she founded on June 1, 2000. She was a
partner in the law firm of Freeborn and Peters from 1994 until May, 2000. Ms.
More served for four years as the first Chief Legal Counsel to the Illinois
Gaming Board and was formerly an Assistant U.S. Attorney for the Northern
District of Illinois. She serves on the Board of Directors of Mandalay Resort
Group and is a member of the Board of Trustees of the International Association
of Gaming Attorneys.

     Neil D. Nicastro has been Midway's President and Chief Operating Officer
for more than five years, Co-Chief Executive Officer since 1994, Chairman of the
Board and Chief Executive Officer since July 1996 and has held various other
executive positions for Midway since 1988. Mr. Nicastro was also our President,
Chief Executive Officer and Chief Operating Officer for more than five years
before his resignation from those positions in April 1998. Mr. Nicastro became a
director of WMS in 1986, and he remains a director and a consultant to us. Mr.
Nicastro is Louis J. Nicastro's son.

     Harvey Reich was a member of the law firm of Robinson Brog Leinwand Greene
Genovese & Gluck, P.C., New York, New York and its predecessor firms for more
than five years until his retirement in July 1998. Mr. Reich was elected a
director of WMS in 1983. Mr. Reich is also a director of Midway.

     David M. Satz, Jr. became a director of WMS in April 1998. Mr. Satz has
been a member of the law firm Saiber Schlesinger Satz & Goldstein, Newark, New
Jersey, for more than five years. Mr. Satz is also a director of the Atlantic
City Racing Association.

     Ira S. Sheinfeld became a director of WMS in 1993. He has been a member of
the law firm of Squadron, Ellenoff, Plesent & Sheinfeld LLP, New York, New York,
for more than five years. Mr. Sheinfeld is also a director of Midway.

     (b) Identification of Executive Officers. The following officers will serve
until the 2001 Annual Meeting of the Board of Directors and until their
respective successors are duly elected and qualify.

     Louis J. Nicastro. The age and principal employment of Louis J. Nicastro
during the last five years is set forth in Item 10(a) above.

                                       30
<PAGE>   32

     Brian R. Gamache, 41, has served as our President and Chief Operating
Officer since April 10, 2000. Mr. Gamache served as President of the Luxury and
Resort Division of Wyndham International from January 1998 until April 2000. He
was President and Chief Operating Officer of WHG from April 1997 until January
1998. From 1990 until April 1997, when WMS spun off WHG, Mr. Gamache served in
various capacities for WMS's former hotel and resort subsidiaries, rising to the
position of President and Chief Operating Officer. At the time of that spinoff,
Mr. Gamache left WMS to devote his full time to WHG.

     Scott D. Schweinfurth, 46, joined us on April 19, 2000, assuming the
offices of Executive Vice President, Chief Financial Officer and Treasurer. He
is a certified public accountant and was, from June 1996 until March 2000,
Senior Vice President, Chief Financial Officer and Treasurer of Alliance Gaming
Corporation, a diversified gaming company. Mr. Schweinfurth also acted as
Managing Director of Alliance's Germany-based Bally Wulff subsidiary from
November 1999 to March 2000. Alliance acquired Bally Gaming International in
June 1996, where Mr. Schweinfurth had served as Senior Vice President, Chief
Financial Officer and Treasurer since 1995. Prior to that time, he was employed
by Ernst & Young for 18 years, the last six as a partner.

     Orrin J. Edidin, 39, joined us in May 1997. He served as our Vice
President, Secretary and General Counsel from June 1997 until May 11, 2000, when
he became our Executive Vice President, Secretary and General Counsel. Mr.
Edidin also served as Vice President, Secretary and General Counsel of Midway
from June 1997 to May 2000. He served as Associate General Counsel of Fruit of
the Loom, Inc. from 1992 until May 1997. Mr. Edidin is a member of the
International Association of Gaming Attorneys and serves as the Vice President
of the Association of Gaming Equipment Manufacturers.

     Terence M. Dunleavy, 43, joined us in May 1997 and was appointed Vice
President, Assistant General Counsel and Chief Compliance Officer in June 1999.
Mr. Dunleavy was Assistant General Counsel/Director of Compliance of Mikohn
Gaming Nevada, Inc. a gaming systems manufacturer, from April 1996 to November
1996, Senior Regulatory Attorney with Madison Gas & Electric Company, from 1994
to January 1996 and Commissioner of the Wisconsin Gaming Commission from 1992 to
1994.

     Robert R. Rogowski, 42, joined us in 1992 as internal auditor, becoming
Vice President of Finance of WMS Gaming in February 1996 and our Vice President
of Finance and Controller on April 19, 2000. He is a certified public
accountant. From 1982 to 1991, he served in the finance department at Sara Lee.

     (c) Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a)
of the Securities Exchange Act of 1934 requires our officers and directors, and
persons who own more than 10 percent of a registered class of our equity
securities, to file reports of ownership and changes in ownership with the SEC.
These reporting persons are required by regulation to furnish us with copies of
all Section 16(a) reports that they file. Based on our review of the copies of
these reports, or written representations from some of the reporting persons
that no Form 5 was required, we believe that during fiscal 2000 all filing
requirements applicable to our officers, directors and greater than 10 percent
beneficial owners were complied with.

ITEM 11. EXECUTIVE COMPENSATION.

     The Summary Compensation Table below sets forth the compensation earned
during the fiscal years ended June 30, 2000, 1999 and 1998 by our Chief
Executive Officer, our four next most highly compensated executive officers
whose fiscal 2000 salary and bonus exceeded $100,000 and two former executive
officers. Mr. Edidin served as an employee of both WMS and Midway until May
2000, and the table sets forth the aggregate employment compensation paid to him
by WMS and Midway. Prior to the Midway spin-off, the compensation that we paid
to Mr. Edidin was allocated to Midway based upon management's estimates of the
percentage of time he devoted to Midway. After the Midway spin-off, compensation
that we or Midway paid to him was reimbursed by the other party in amounts equal
to the allocated cost under an agreement between Midway and us. We believe that
Mr. Edidin devoted, from time to time, 40% to 70% of his time to Midway.

                                       31
<PAGE>   33

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                        ANNUAL COMPENSATION              LONG TERM COMPENSATION AWARDS
                                              ---------------------------------------   -------------------------------
                                                                                         SECURITIES        ALL OTHER
                                                                              OTHER      UNDERLYING      COMPENSATION
NAME AND PRINCIPAL POSITION                   YEAR   SALARY($)   BONUS($)      ($)      OPTIONS(#)(1)         ($)
---------------------------                   ----   ---------   ---------   --------   -------------   ---------------
<S>                                           <C>    <C>         <C>         <C>        <C>             <C>
Louis J. Nicastro...........................  2000    562,500    1,139,680         --              --             --
  Chairman of the Board                       1999    450,000     500,000          --              --             --
  and Chief Executive Officer (2)             1998    107,308          --          --         500,000      4,956,640(3)
Brian R. Gamache............................  2000     86,538     144,932(4)   22,500         250,000             --
  President and Chief Operating Officer (5)
Scott D. Schweinfurth.......................  2000     52,661      49,796(4)       --         100,000             --
  Executive Vice President, Chief Financial
  Officer and Treasurer (6)
Orrin J. Edidin.............................  2000    217,305      75,000          --         100,000             --(7)
  Executive Vice President, Secretary and     1999    200,000      75,000          --          25,000             --(7)
  General Counsel                             1998    180,000      75,000          --          25,000             --(7)
Terence M. Dunleavy.........................  2000    138,653      45,000          --          30,000             --
  Vice President, Assistant General Counsel   1999    113,000      36,000          --           5,000             --
  and Chief Compliance Officer (8)
Kevin L. Verner (9).........................  2000    208,646     200,000          --              --             --(7)
                                              1999    250,000     200,000          --          50,000         72,000(7)(10)
                                              1998    250,000     100,000          --              --         50,100(7)(10)
Jeffrey M. Schroeder (11)...................  2000    173,906          --      87,500          15,000             --(7)
</TABLE>

-------------------------
 (1) Does not include Midway stock options, all of which were granted at an
     exercise price equal to market value on the date of grant. In fiscal 2000,
     Mr. Nicastro received options to purchase 10,000 shares of Midway common
     stock and Mr. Edidin received options to purchase 65,000 shares of Midway
     common stock. In fiscal 1999, Mr. Edidin received options to purchase
     41,304 shares of Midway common stock. In fiscal 1998, Mr. Nicastro received
     options to purchase 10,000 shares of Midway common stock and Mr. Edidin
     received options to purchase 35,000 shares of Midway common stock.

 (2) Mr. Nicastro rejoined WMS on April 6, 1998. See "Item 1. Business -- The
     Midway Spinoff".

 (3) Represents a payment made to Mr. Nicastro to compensate him in lieu of
     adjusting his WMS stock options in connection with the Midway spinoff. See
     "Adjustment to Options Resulting from the Midway Spinoff."

 (4) Includes signing bonuses of $100,000 for Mr. Gamache and $25,000 for Mr.
     Schweinfurth.

 (5) Mr. Gamache joined WMS on April 10, 2000. The amount shown in the "other"
     column represents reimbursements for relocation expenses advanced at the
     rate of $7,500 per month. After actual relocation expenses are determined,
     an adjustment will be made to the actual amount.

 (6) Mr. Schweinfurth joined WMS on April 19, 2000.

 (7) Excludes the value of adjustments to WMS stock options of these holders due
     to the Midway Spinoff. These amounts are as follows: Mr. Edidin received
     $49,442 in cash in fiscal 1998, $105,748 in cash in fiscal 1999 and
     $147,112 in cash in fiscal 2000. He will receive additional cash adjustment
     payments, up to a total of $196,149 (plus interest) if he is still serving
     WMS or Midway through the end of the vesting period, on the dates that his
     options would have vested. Mr. Verner received $175,615 in cash and common
     stock valued at $85,904 in fiscal 1998, $531,959 in cash in fiscal 1999 and
     $752,262 in cash in fiscal 2000. Our common stock was valued at the average
     of the high and low sale prices on the New York Stock Exchange on April 3,
     1998, the last day of trading prior to the spinoff.

 (8) Mr. Dunleavy was elected Vice President, Assistant General Counsel and
     Chief Compliance Officer of WMS as of June 1, 1999 after joining us in May
     1997.

 (9) Mr. Verner resigned as Vice President and Chief Operating Officer of WMS
     effective on April 10, 2000.

(10) Includes $72,000 and $50,100 paid in fiscal 1999 and 1998, respectively, to
     Mr. Verner in consideration of his forfeiture of performance units granted
     by his previous employer.

(11) Mr. Schroeder resigned as Vice President, Chief Financial Officer and
     Treasurer of WMS on April 19, 2000. The amount shown under the "other"
     column represents his severance payment.

                                       32
<PAGE>   34

     The following table sets forth information with respect to options to
purchase common stock granted in fiscal 2000 under our stock option plans to
persons named in the Summary Compensation Table.

                       OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                                                                          POTENTIAL REALIZABLE
                                 INDIVIDUAL GRANTS                                          VALUE AT ASSUMED
                           -----------------------------                                  ANNUAL RATES OF STOCK
                                           % OF TOTAL                                    PRICE APPRECIATION FOR
                                         OPTIONS GRANTED                                     OPTION TERM(1)
                             OPTIONS     TO EMPLOYEES IN   EXERCISE PRICE   EXPIRATION   -----------------------
NAME                       GRANTED(#)    FISCAL YEAR(%)      ($/SHARE)         DATE        5%($)        10%($)
----                       -----------   ---------------   --------------   ----------   ----------   ----------
<S>                        <C>           <C>               <C>              <C>          <C>          <C>
Louis J. Nicastro........          --            --                 --             --            --           --
Brian R. Gamache.........  250,000(2)         24.0%           $ 8.9375         4/9/10    $1,405,185   $3,561,017
Scott D. Schweinfurth....  100,000(3)          9.6%           $  8.125        4/19/10    $  510,500   $1,294,915
Orrin J. Edidin..........  100,000(3)          9.6%           $  8.125        4/19/10    $  510,500   $1,294,915
Terence M. Dunleavy......   20,000(3)          1.9%           $  8.125        4/19/10    $  102,100   $  258,983
                            10,000(4)          1.0%           $ 10.375       11/23/09    $   65,248   $  165,351
Kevin L. Verner..........          --            --                 --             --            --           --
Jeffrey M. Schroeder.....   15,000(4)          1.4%           $10.9375        12/5/09    $  103,178   $  261,473
</TABLE>

-------------------------
(1) The assumed appreciation rates are set under the rules and regulations
    promulgated under the Securities Exchange Act of 1934 and are not derived
    from the historical or projected prices of our common stock.

(2) Vests as to 100,000 shares on 4/10/2001 and as to an additional 30,000
    shares on each April 10 beginning with 2002 until fully vested.

(3) This option becomes exercisable for up to 25%, 50%, 75% and 100% of the
    option grant upon the first, second, third and fourth anniversaries,
    respectively, of the date of grant.

(4) This option becomes exercisable for up to 10%, 30%, 60% and 100% of the
    option grant upon the first, second, third and fourth anniversaries,
    respectively, of the date of grant.

     The following table sets forth certain information about the exercise of
options to purchase our common stock and the number and value of outstanding
options owned by persons named in the Summary Compensation Table.

                AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                       AND FISCAL-YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
                                                                     NUMBER OF
                                                                     SECURITIES
                                                                     UNDERLYING             VALUE OF
                                                                    UNEXERCISED           UNEXERCISED
                                                                      OPTIONS         IN-THE-MONEY OPTIONS
                                        SHARES                     AT 6/30/00(#)        AT 6/30/00($)(1)
                                      ACQUIRED ON      VALUE        EXERCISABLE/          EXERCISABLE/
NAME                                  EXERCISE(#)   REALIZED($)    UNEXERCISABLE         UNEXERCISABLE
----                                  -----------   -----------   ----------------   ----------------------
<S>                                   <C>           <C>           <C>      <C>       <C>         <C>
Louis J. Nicastro...................        --             --     500,000/      --   $5,000,000/         --
Brian R. Gamache....................        --             --          --/ 250,000   $       --/ $1,625,000
Scott D. Schweinfurth...............        --             --          --/ 100,000   $       --/ $  731,250
Orrin J. Edidin.....................        --             --      22,500/ 127,500   $  263,978/ $1,125,985
Terence M. Dunleavy.................        --             --       6,500/  48,500   $   68,688/ $  375,063
Kevin L. Verner.....................    75,046        735,827          --/      --           --/         --
Jeffrey M. Schroeder................        --             --          --/      --           --/         --
</TABLE>

-------------------------
(1) Based on the closing price of our common stock on the New York Stock
    Exchange on June 30, 2000, which was $15.4375.

ADJUSTMENT TO OPTIONS RESULTING FROM THE MIDWAY SPINOFF

     Each of our four stock option plans in effect prior to the Midway spinoff
provided that in the event of a dividend or other distribution, such as a
spinoff, outstanding options were to be adjusted to prevent dilution of

                                       33
<PAGE>   35

the benefits or potential benefits intended to be made available by the options
in a manner that the Board of Directors deemed equitable.

     In consultation with our financial advisors, the Board approved, and our
option holders accepted, a plan in which option holders retained their options
to acquire shares of our common stock after the Midway spinoff at an exercise
price adjusted to reflect the difference in the value of our common stock
immediately before and after the spinoff, and option holders received
compensation for the lost value resulting from the distribution of the shares of
common stock of Midway to our stockholders in which option holders would not
participate. In order to preserve our cash resources, this compensation was paid
through a combination of cash and shares of our common stock. Shortly before the
spinoff, the Board became concerned that, after payment of taxes, optionees
would have little cash remaining and might be inclined, for investment
concentration or other reasons, to sell shares of Midway common stock received
in the spinoff, which sales might have a depressive effect on the market price
of that stock. The Board believed that this concern would be alleviated if $5.0
million of additional cash were available to pay to optionees so that optionees
would receive at least 70% of their adjustment payments in cash.

     In order to raise the additional $5.0 million in cash as well as additional
cash of approximately $8.5 million used to pay expenses of the spinoff and for
additional working capital, we requested that Louis J. Nicastro, Chairman of the
Board of WMS, forego his entitlement under the adjustment plan to receive
payments valued at $10,406,059 and an adjustment of the exercise price of his
stock options to $3.519 per share. Instead, at the request of the Board, shortly
before the spinoff, Mr. Nicastro exercised his options to purchase 629,554
shares of our common stock, sold these shares in the public market and received
from us a payment of $4,956,640 representing the difference between $10,406,059
and the net amount he received from the exercise and sale. When Mr. Nicastro
exercised his options, we received an aggregate exercise price of $13,437,200.
The consideration paid under the adjustment plan to the persons named in the
Summary Compensation Table is s set forth in footnote 6 to that table.

COMPENSATION OF DIRECTORS

     We pay a fee of $30,000 per year to each director who is not also an
employee of WMS or our subsidiaries. Each director who serves as the chairman of
any committee of our Board of Directors receives a further fee of $5,000 per
year for his services in that capacity, and each member of our Audit and Ethics
Committee receives an additional fee of $5,000 per year.

     Our 1991, 1993, 1998 and 2000 stock option plans permit the issuance of
shares of our common stock under non-qualified stock options which may be
granted to non-employee directors of WMS, generally at not less than 100% of the
fair market value of the shares on the date of grant. Under these plans, Mr.
Sheinfeld holds options to purchase 125,728 shares; Messrs. Bartholomay, McKenna
and Menell each hold options to purchase 87,955 shares; Mr. Reich holds options
to purchase 62,955 shares; Mr. Neil D. Nicastro holds options to purchase 25,000
shares; Mr. Satz holds options to purchase 75,000 shares; and Ms. More holds
options to purchase 50,000 shares of our common stock.

     Directors are also entitled to participate, at our expense, in a medical
reimbursement plan which is supplementary to their primary medical insurance.

     In connection with the Midway spinoff, we entered into a consulting
agreement (the "Consulting Agreement") with Neil D. Nicastro under which Mr.
Nicastro agreed to make himself reasonably available at our request, to render
services to us that the Board of Directors or the Chairman of the Board and
Chief Executive Officer of WMS may reasonably request. The term of the
Consulting Agreement is for five years from the date of the spinoff, and is
automatically renewable for successive one year terms unless either party shall
give notice of termination not less than six months prior to the end of the term
then in effect. We pay Mr. Nicastro $1,000 per month for his services under the
Consulting Agreement.

                                       34
<PAGE>   36

STOCK OPTION PLANS

     We currently have the following six stock option plans in effect: the 1982
Employee Stock Option Plan; the 1991 Stock Option Plan; the 1993 Stock Option
Plan; the 1994 Stock Option Plan; the 1998 Non-Qualified Stock Option Plan; and
the 2000 Non-Qualified Stock Option Plan (collectively, the "Plans"). Under the
Plans, we may grant options to purchase shares of our common stock. These
options may be incentive stock options, which meet the requirements of Section
422 of the Internal Revenue Code, except in the case of the 1998 and 2000 Plans,
or may not meet the requirements of that section.

     The purpose of each of the Plans is to encourage our employees and our
subsidiaries and, under certain of the Plans, non-employee directors,
consultants and advisers to acquire a proprietary interest in WMS and to enable
these individuals to realize benefits from an increase in the value of our
common stock. We believe that this benefit provides these individuals with
greater incentive and encourages their continued provision of services to us
and, generally, promotes our interests and those of our stockholders.

     Under the 1982 Plan, as of September 15, 2000, 44,818 options were
outstanding, and no further options were available for grant. Under the 1991
Plan, 126,219 options were outstanding, and no further options were available
for grant. Under the 1993 Plan, 433,459 options were outstanding, and 1,260
further options were available for grant. Under the 1994 Plan, 361,810 options
were outstanding, and no further options were available for grant. Under the
1998 Plan, 933,550 options were outstanding, and 42,500 further options were
available for grant. Under the 2000 Plan, 986,514 options were outstanding, and
763,486 further options were available for grant. The average exercise price of
outstanding options, at September 15, 2000, was approximately $10.00 per share.
Of the 2,886,370 options outstanding, 1,699,967 were held by officers and
directors of WMS (including 500,000 held by Louis J. Nicastro).

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     No member of our Compensation Committee or Stock Option Committee is an
employee or officer of WMS, and no officer, director or other person had any
relationship required to be disclosed here.

EMPLOYMENT CONTRACTS

     We employ Louis J. Nicastro under the terms of an Employment Agreement
dated September 2, 1999. He receives salaried compensation at the rate of
$675,000 per year, or a greater amount if determined by the Board of Directors.
Under the agreement, Mr. Nicastro is entitled to a bonus in an amount generally
equal to two percent of our pre-tax income. Mr. Nicastro may participate in all
benefit plans and perquisites generally available to senior executives and is
entitled to reimbursement of all medical and dental expenses incurred by him or
his wife during their lives to the extent that these expenses are not otherwise
reimbursed by insurance that we provide. Additionally, Mr. Nicastro is entitled
to receive any special bonuses that may be determined by the Board of Directors.
The agreement also provides that the stock options granted to Mr. Nicastro in
1998, when he rejoined WMS, will be exercisable for their full 10-year term,
even if he dies or retires, as long as he complies with his non-competition
obligations. The agreement expires on June 30, 2003, subject to automatic
extensions so that the term of Mr. Nicastro's employment shall at no time be
less than two years.

     In addition, Mr. Nicastro or his estate is entitled to receive certain
death, retirement and disability benefits. The death and retirement benefits are
payable in installments and are equal to one-half of Mr. Nicastro's salary at
the time of death or retirement, provided that payments would not be less than
$225,000 per annum. The payment period of the death or retirement benefits is
the lesser of 7 years or the number of years Mr. Nicastro is employed by WMS,
beginning April 6, 1998, times 2 1/3. If Mr. Nicastro is disabled for more than
six consecutive months, and Mr. Nicastro is not able to resume his duties within
30 days of notice of disability, Mr. Nicastro's employment terminates, and he is
entitled to receive retirement benefits under the agreement.

     Either party may terminate the agreement effective upon expiration of the
original term or an extended term upon written notice from the terminating party
to the other party dated and received at least two years

                                       35
<PAGE>   37

prior to the respective termination date. The employment agreement may be
terminated at the election of Mr. Nicastro upon the occurrence without his prior
written consent of any one or more of the following events:

     - the placement of Mr. Nicastro in a position of lesser status, the
       assignment to Mr. Nicastro of duties inconsistent with his current
       positions with us or duties which, if performed, would result in a
       significant change in the nature or scope of powers, authority, functions
       or duties inherent in his positions, the assignment to Mr. Nicastro of
       performance requirements or working conditions which are at variance with
       those presently in effect, or the treatment of Mr. Nicastro in a manner
       which is in derogation of his status as President and Chief Executive
       Officer;

     - the cessation of service of Mr. Nicastro as a member of the Board of
       Directors of WMS;

     - the discontinuance or reduction (from the highest level in effect during
       the term of the employment agreement) of base salary payable to Mr.
       Nicastro; and

     - the discontinuance or reduction (from the level in effect on the date of
       the employment agreement) of the perquisites inherent in Mr. Nicastro's
       position on the date of the employment agreement.

     If any of these events occurs, if the individuals who presently constitute
the Board of Directors, or successors approved by these Board members, cease for
any reason to constitute at least a majority of the Board or if we are
considered to have wrongfully terminated Mr. Nicastro's employment agreement,
then we would be obligated (a) to pay Mr. Nicastro a lump sum payment equal in
amount to Mr. Nicastro's base salary, at the highest annual rate in effect
during the one-year period immediately preceding termination, through the end of
the term of the agreement; (b) the greater of $500,000 or the aggregate bonus
which would have been payable during the remaining term of the agreement at the
highest level achieved in either of the last two fiscal years prior to
termination and (c) the maximum aggregate retirement benefits which would have
been payable in the event of retirement on the date of termination; provided
that the aggregate payment would not be less than three times base salary. In
addition, we would be obligated to purchase at the election of Mr. Nicastro all
stock options held by him with respect to our common stock and options to
purchase the securities of any other company at least 20% of the voting
securities of which we own at a price equal to the spread between the option
price and the fair market price of our common stock as defined in the employment
agreement.

     If payments made to Mr. Nicastro under the employment agreement after a
change of control are considered "excess parachute payments" under Section 280G
of the Internal Revenue Code of 1986 (the "Code"), additional compensation is
required to be paid to Mr. Nicastro to the extent necessary to eliminate the
economic effect on him of the resulting excise tax. Under Section 4999 of the
Code, in addition to income taxes, the recipient is subject to a 20%
nondeductible excise tax on excess parachute payments. An excess parachute
payment is a payment in the nature of compensation which is contingent on a
change of ownership or effective control and which exceeds the portion of the
base amount (i.e., the average compensation for the five-year period prior to
the change of control) allocable to the payment. These rules apply only if the
present value of all payments of compensation contingent on the change of
control (including non-taxable fringe benefits) is at least equal to three times
the base amount. Excess parachute payments are not deductible by us.

     We employ Brian R. Gamache under the terms of an Employment Agreement dated
as of March 21, 2000. The employment agreement provides for salaried
compensation at the rate of $375,000 per year, or a greater amount as may be
determined by the Board of Directors. The agreement also provides for a fixed
bonus of the rate of $200,000 per year if the employment continues through the
end of that year. In addition, Mr. Gamache receives a performance bonus for each
full fiscal year of up to $175,000 per year and, among other things, life
insurance coverage in the amount of $200,000 and full participation in all
benefit plans and perquisites generally available to executive employees. Mr.
Gamache received a signing bonus of $100,000 and relocation expenses of up to
$115,000. The agreement expires on June 30, 2003. We may terminate the agreement
upon 30 days written notice for cause. The employment agreement may also be
terminated at the election of Mr. Gamache for material breach or if the
individuals who presently constitute the Board of Directors, or successors
approved by these Board members, cease for any reason to constitute at least a
majority of the Board. If such a change of control occurs, and Mr. Gamache gives
us notice of termination

                                       36
<PAGE>   38

within 60 days, then in lieu of any other rights under the agreement, all of Mr.
Gamache's unvested stock options will immediately vest, and we will be required
to pay him a lump sum of three times his base salary and fixed bonus. If the
agreement terminates by reason of death or disability, we are required to pay
Mr. Gamache or his legal representatives an amount equal to one year's base
salary and one year's fixed bonus. If we terminate the agreement for a reason
other than cause, we are required to pay the greater of (i) one year or (ii) the
remainder of the term multiplied by base salary plus fixed bonus. If any portion
of the amount paid to Mr. Gamache is subject to the excise tax imposed by
Section 4999 of the Code, then additional compensation is required to be paid to
him to the extent necessary to eliminate the economic effect on him of the
resulting excise tax.

     We employ Scott D. Schweinfurth under the terms of an Employment Agreement
dated as of May 19, 2000. The employment agreement provides for salaried
compensation at the rate of $275,000 per year, or a greater amount as may be
determined by us. Mr. Schweinfurth may receive annual discretionary bonuses of
up to 75% of his base salary, depending on performance criteria, and he received
a signing bonus of $25,000 and relocation expenses. Additionally, Mr.
Schweinfurth may participate in all benefit plans generally available to
executive employees and is provided with life insurance coverage in the amount
of $400,000 or whatever lesser amount is available at an annual premium of
$3,000. The agreement is subject to automatic extensions so that the term of Mr.
Schweinfurth's employment shall at no time be less than one year. We may
terminate the agreement upon 30 days written notice for cause. The employment
agreement may also be terminated at the election of Mr. Schweinfurth upon 30
days written notice for material breach. It may also be terminated by Mr.
Schweinfurth if the individuals who presently constitute the Board of Directors,
or successors approved by these Board members, cease for any reason to
constitute at least a majority of the Board. If such a change of control occurs,
and Mr. Schweinfurth gives us notice of termination within 60 days, then in lieu
of any other rights under the agreement, all of Mr. Schweinfurth's unvested
stock options will immediately vest, and we will be required to pay him a lump
sum of three times his base salary and fixed bonus. If the agreement terminates
by reason of death, disability or material breach by us, or if we terminate the
agreement other than for cause, we are required to pay Mr. Schweinfurth or his
legal representatives an amount equal to all cash compensation that would
otherwise be payable to him until the expiration of the extended term of the
agreement. If any portion of the amount paid to Mr. Schweinfurth is subject to
the excise tax imposed by Section 4999 of the Code, then additional compensation
is required to be paid to him to the extent necessary to eliminate the economic
effect on him of the resulting excise tax.

     We employ Orrin J. Edidin under the terms of an Employment Agreement dated
as of May 8, 2000. The employment agreement provides for salaried compensation
at the rate of $250,000 per year, or a greater amount as may be determined by
us. Mr. Edidin may receive annual discretionary bonuses of up to 50% of his base
salary, depending on performance criteria. Mr. Edidin also receives a bonus of
$125,000 if he continues to serve us through October 30, 2000 or is sooner
terminated other than for cause or sooner terminates the agreement because of
our material breach. Additionally, Mr. Edidin may participate in all benefit
plans generally available to executive employees and is provided with life
insurance coverage in the amount of $400,000 or whatever lesser amount is
available at an annual premium of $3,000. The agreement is subject to automatic
extensions so that the term of Mr. Edidin's employment shall at no time be less
than three years. We may terminate the agreement upon 30 days written notice for
cause. The employment agreement may also be terminated at the election of Mr.
Edidin upon 30 days written notice for material breach. It may also be
terminated by Mr. Edidin if the individuals who presently constitute the Board
of Directors, or successors approved by these Board members, cease for any
reason to constitute at least a majority of the Board. If such a change of
control occurs, and Mr. Edidin gives us notice of termination within 60 days,
then in lieu of any other rights under the agreement, all of Mr. Edidin's
unvested stock options will immediately vest, and we will be required to pay him
a lump sum of three times his base salary and fixed bonus. If the agreement
terminates by reason of death, disability or material breach by us, or if we
terminate the agreement other than for cause, we are required to pay Mr. Edidin
or his legal representatives an amount equal to all cash compensation that would
otherwise be payable to him until the expiration of the extended term of the
agreement. If any portion of the amount paid to Mr. Edidin is subject to the
excise tax imposed by Section 4999 of the Code, then additional compensation is
required to be paid to him to the extent necessary to eliminate the economic
effect on him of the resulting excise tax.
                                       37
<PAGE>   39

     We employ Terence M. Dunleavy under the terms of an Employment Agreement
dated as of June 7, 2000. The employment agreement provides for salaried
compensation at the rate of $175,000 per year, or a greater amount as may be
determined by us. Mr. Dunleavy may receive annual discretionary bonuses of up to
50% of his base salary, depending on performance criteria. Additionally, Mr.
Dunleavy may participate in all benefit plans generally available to employees.
The agreement is subject to automatic extensions so that the term of Mr.
Dunleavy's employment shall at all times be one year, unless the agreement is
terminated voluntarily by Mr. Dunleavy or for cause by WMS. The employment
agreement may also be terminated at the election of Mr. Dunleavy if the
individuals who presently constitute the Board of Directors, or successors
approved by these Board members, cease for any reason to constitute at least a
majority of the Board and if we then breach our obligations to Mr. Dunleavy
under the agreement. If both of these conditions are satisfied, and Mr. Dunleavy
gives us notice of termination within 60 days of the breach, then in lieu of any
other rights under the agreement, all of Mr. Dunleavy's unvested stock options
will immediately vest, and we will be required to pay to Mr. Dunleavy the lesser
of the following: (a) one year's base salary; or (b) the maximum amount which
could be paid to him without any portion of that amount being subject to the
excise tax imposed by Section 4999 of the Code.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

VOTING PROXY AGREEMENT

     In order for us to manufacture and sell gaming machines in Nevada, our
officers are required to be, and have been, registered, licensed or found
suitable by the Nevada Gaming Authorities. In addition, under applicable Nevada
law and administrative procedure, as a greater than 10% stockholder of WMS,
Sumner M. Redstone was required to apply, and has an application pending with
the Nevada Gaming Authorities, for a finding of suitability as a stockholder of
WMS. Mr. Redstone and National Amusements, Inc. ("NAI"), a company that he
controls, collectively own 8,028,200 shares of our common stock. Pending
completion of the processing of this application, Mr. Redstone and NAI, on
September 21, 1995, voluntarily granted a voting proxy under a voting agreement
to Louis J. Nicastro and, if he is unable to perform his duties under the voting
agreement, to Neil D. Nicastro, individually, to vote all of Mr. Redstone's and
NAI's shares of our common stock. The voting agreement is intended to ensure
that the passive investment position of Mr. Redstone and NAI relative to WMS
will not change without prior notification to the Nevada Gaming Authorities.

     Under the voting agreement, Mr. Nicastro votes each share of our common
stock owned by Mr. Redstone and NAI at his discretion at meetings of our
stockholders or acts as proxy in connection with any written consent of our
stockholders. The term of the voting agreement ends August 24, 2004 unless Mr.
Redstone terminates it upon 30 days' written notice. It may also be terminated
upon a finding by the Nevada Gaming Authorities that Mr. Redstone and NAI are
suitable as stockholders of WMS or are no longer subject to the applicable
provisions of Nevada gaming laws.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth information as of September 15, 2000 (except
as otherwise footnoted) about persons we know to be beneficial owner of more
than five percent of our common stock, each of the executive officers named in
the Summary Compensation Table who is not also a director of WMS, and all of our
directors and executive officers as a group. Security ownership of our
directors, individually, is set forth under the heading "Identification of
Directors" in Item 10(a) above.

                                       38
<PAGE>   40

<TABLE>
<CAPTION>
                                                                    NUMBER OF
                                                                 SHARES OF COMMON      PERCENTAGE OF
                                                                STOCK BENEFICIALLY      OUTSTANDING
            NAME AND ADDRESS OF BENEFICIAL OWNER                     OWNED(1)         COMMON STOCK(1)
            ------------------------------------                ------------------    ---------------
<S>                                                             <C>                   <C>
Sumner M. Redstone and National Amusements, Inc.............        8,028,200(2)           25.6%
  200 Elm Street
  Dedham, MA 02026
FMR Corp....................................................        4,175,020(3)           13.3%
  82 Devonshire St.
  Boston, MA 02109
Merrill Lynch & Co., Inc....................................        3,188,667(4)           10.2%
  250 Vesey Street
  New York, NY 10381
Neil D. Nicastro (5)........................................        8,053,214(6)           25.6%
Louis J. Nicastro (5).......................................        8,582,832(7)           26.9%
Brian R. Gamache (5)........................................            5,000                  *
Scott D. Schweinfurth (5)...................................            1,000                  *
Orrin J. Edidin (5).........................................           22,500(8)               *
Terence M. Dunleavy (5).....................................            7,500(9)               *
Jeffrey M. Schroeder........................................               --                  0
  299 North Dunton
  Arlington Heights, IL 60004
Kevin L. Verner.............................................               --                  0
  1324 Elmwood Avenue
  Wilmette, IL 60091
Directors and executive officers as a group (16 persons)....        9,314,809(10)          28.6%
</TABLE>

-------------------------
  *  Less than 1%.

 (1) Under Rule 13d-3(d)(1) of the Securities Exchange Act of 1934, shares
     underlying options are deemed to be beneficially owned if the holder of the
     option has the right to acquire beneficial ownership of the underlying
     shares within 60 days. Percentage calculations based on 31,395,932 shares
     outstanding on September 15, 2000.

 (2) Based upon Amendment No. 21, dated April 27, 2000, to Schedule 13D filed by
     Sumner M. Redstone and National Amusements, Inc. and a Form 4 for August
     2000 filed by Mr. Redstone with the SEC. On those filings, Redstone and
     National Amusements reported sole dispositive power over 4,544,300 and
     3,483,900 shares, respectively, and shared voting power over those shares
     under a Proxy Agreement entered into with WMS and Messrs. Louis J. and Neil
     D. Nicastro. See "Voting Proxy Agreement." As a result of his stock
     ownership in National Amusements, Redstone is considered the beneficial
     owner of the shares owned by National Amusements.

 (3) Based upon Amendment No. 7 to Schedule 13G filed February 14, 2000, with
     the SEC by Fidelity International Limited and FMR Corp., the sole
     stockholder of Fidelity Management & Research Company and Fidelity
     Management Trust Company. FMR reported that it has sole voting power over
     698,700 of the shares and sole dispositive power over 3,666,800 of the
     shares as a result of Fidelity Management's acting as investment adviser to
     various investment companies holding 2,968,100 of the shares and Fidelity
     Management Trust's holding 698,700 of the shares. FMR Corp. also reported
     that Fidelity Advisors Value Strategies Fund, one of the investment
     companies, was a beneficial owner of 1,890,100 of these shares. In
     addition, Fidelity International reported that it has sole voting and
     investment power over 508,220 of the shares as a result of its acting as
     investment adviser to various investment companies. Fidelity International
     was spun off from FMR Corp. in 1980. Fidelity International and FMR also
     reported that they each may be deemed to be controlled by members of the
     Edward C. Johnson 3d family.

 (4) Based on Amendment No. 1 to Schedule 13G filed May 5, 2000 with the SEC by
     Merrill Lynch & Co., Inc. on behalf of its division, Merrill Lynch Asset
     Management Group ("AMG") and by Merrill Lynch Special Value Fund, Inc.
     ("SVF"). AMG reported shared voting and dispositive power over 3,188,667
     shares, and SVF reported shared voting and dispositive power over 2,113,600
     shares.

 (5) This person's address is c/o WMS Industries Inc., 3401 North California
     Avenue, Chicago, IL 60618.

 (6) Includes 8,028,200 shares owned by Sumner M. Redstone and National
     Amusements, Inc. for which the reporting person has shared voting power but
     no dispositive power. Also includes 25,000 shares underlying stock options.
     For a

                                       39
<PAGE>   41

     discussion concerning the shared voting power over the 8,028,200 shares
     referred to above, see "Voting Proxy Agreement."

 (7) Includes 8,028,200 shares owned by Sumner M. Redstone and National
     Amusements, Inc. for which the reporting person has shared voting power but
     no dispositive power. Also includes 500,000 shares underlying stock
     options. For a discussion concerning the shared voting power over the
     8,028,200 shares referred to above, see "Voting Proxy Agreement."

 (8) Includes 22,500 shares underlying stock options.

 (9) Includes 6,500 shares underlying stock options.

(10) Includes 1,138,037 shares underlying stock options. Additionally, includes
     8,028,200 shares of common stock owned by Sumner M. Redstone and National
     Amusements, Inc. over which Louis J. Nicastro and Neil D. Nicastro both
     have shared voting power but no dispositive power. See "Voting Proxy
     Agreement."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

RELATIONSHIP WITH MIDWAY

     Midway was formerly a wholly-owned subsidiary of ours. Since we distributed
all of our Midway stock to our stockholders in April 1998, we do not own any
Midway common stock. Seven of Midway's directors are also directors of ours,
including Louis J. Nicastro and Neil D. Nicastro, the Chief Executive Officer of
Midway. See "Item 10 -- Directors and Executive Officers of the Registrant."

     In connection with our spinoff of Midway, we entered into a number of
agreements with Midway, each dated as of April 6, 1998. In connection with the
termination of our manufacturing relationship with Midway, notice has been given
to terminate several of the 1998 agreements early. In addition, the parties are
negotiating with respect to the purchase by Midway of specified equipment and
spare parts and for the lease by Midway of our building at 2704 Roscoe Street in
Chicago Illinois, to begin in 2001, among other matters. The material agreements
between Midway and us, each dated as of April 6, 1998, as amended in some cases,
are described below:

     Manufacturing Agreement. We manufacture coin-operated video games and kits
for Midway under this agreement. Midway supplies most of the materials used in
the manufacture of coin-operated video games, but we supply a small amount of
the materials and charge Midway our cost plus 9.0% for these materials. All
labor costs, including fringe benefits, directly associated with the
manufacturing of coin-operated video games are charged to Midway at our cost,
plus 9.0%. The Waukegan plant's operating costs are either identified as Midway
costs and charged to Midway, or allocated as agreed between the parties, plus
9%. The identified or allocated costs include manufacturing costs, materials
management costs, quality assurance costs and administration costs. The
agreement has been noticed for termination on September 30, 2000.

     Spare Parts Sales and Service Agreement. We sell spare parts for Midway's
coin-operated video games. The agreement does not include warranty services,
which Midway provides directly to its customers. The agreement has been noticed
for termination on September 30, 2000.

     Information Systems Service Agreement. We provide Midway with access to our
computer systems for many of their computing needs, including order entry,
financial and manufacturing modules, marketing and sales and engineering
(including engineering documentation and blueprint systems) as well as support
for the computer system. We also coordinate the provision and maintenance of
cabling, wiring, switching components, routers and gateway and the purchasing,
maintaining and upgrading of network services for Midway. These services include
purchasing of desktop computers and related hardware as well as providing some
telecommunications services to Midway. Midway may also request that we provide
services to it to develop their communications networking, operating and
computer system and other related services. Midway pays us an amount equal to
our cost for all services provided plus 6.6%. The agreement has been noticed for
termination on December 31, 2000, except with respect to access to Midway's
AS-400 System and related services, which access and services shall terminate on
December 31, 2001.

                                       40
<PAGE>   42

     Confidentiality and Non-Competition Agreement. Under this agreement, Midway
or we may designate business information as confidential, and the other party
must use its best efforts to keep this information confidential. The agreement
also includes a five year non-competition clause.

     Right of First Refusal Agreement. We have granted Midway a right of first
refusal with respect to any offer to us to purchase specified facilities of ours
as long as the offer is not made in connection with the sale of our stock or
assets and business as a going concern. The term of the agreement expires April
5, 2008.

     Third Parties Agreement. This agreement governs the treatment of the
numerous arrangements with third parties with respect to game development,
licensing and other matters. Under the agreement, Midway and we allocate the
rights and obligations under third party arrangements so that the party
receiving the benefits will bear the burdens of those agreements. The agreement
will remain in effect as long as any prior third party arrangements remain
outstanding.

     Temporary Support Services Agreement. We supply a portion of Midway's
janitorial and other agreed upon services, including the use of space by Midway
in any of our facilities, as requested by Midway. In exchange for these
services, Midway pays us an amount equal to our direct or allocated cost
(including wages, salaries, fringe benefits and materials), as indicated on our
monthly invoices. The agreement will continue until December 31, 2001; provided,
however, that each party may, upon 60 days notice, terminate any one or more of
the services provided, except the use of space by Midway in any WMS facility.

     Tax Separation Agreement. Until the Midway spinoff, Midway had been a
member of the consolidated group of corporations of which WMS was the common
parent for federal income tax purposes (the "WMS Group") since 1988. Therefore,
Midway is jointly and severally liable for any federal tax liability of the WMS
Group for the period that it was part of the WMS Group. The agreement sets forth
the parties' respective liabilities for federal, state and local taxes as well
as their agreements as a result of Midway and its subsidiaries ceasing to be
members of the WMS Group. The agreement governs, among other things, (i) the
filing of tax returns with federal, state and local authorities, (ii) the
carryover of any tax benefits of Midway, (iii) the treatment of the deduction
attributable to the exercise of stock options to purchase our common stock which
are held by employees or former employees of Midway and any other similar
compensation related tax deductions, (iv) the treatment of certain net operating
loss carrybacks, (v) the treatment of audit adjustments, (vi) procedures with
respect to any proposed audit adjustment or other claim made by any taxing
authority with respect to a tax liability of Midway or any of its subsidiaries.
Some other tax matters are addressed in the Tax Sharing Agreement described
below.

     Tax Indemnification Agreement. This agreement provides for indemnification
if the Midway spinoff fails to qualify under Section 355 of the Code. Each of
the parties agreed, among other things, that for a period of two years after the
spinoff, each would continue active conduct of its historic trade or business as
conducted by it during the five-year period prior to the spinoff. Additionally,
each party agreed not to: (i) merge or consolidate with another entity; (ii)
liquidate or partially liquidate; (iii) sell or transfer all or substantially
all its assets in a single transaction or a series of transactions; (iv) redeem
or otherwise repurchase any of its capital stock in a manner contrary to certain
Internal Revenue Service ("IRS") revenue procedures; (v) enter into any
transaction or make any change in its equity structure which may cause the
spinoff to be treated as a plan under which one or more persons acquire directly
or indirectly its common stock representing a "50 percent or greater interest"
within the meaning of Section 355(d)(4) of the Code; or (vi) in the case of
Midway, except in connection with stock issued under an employee benefit or
compensation plan, and except as described in the private letter ruling issued
in connection with the spinoff, issue additional shares of its capital stock,
unless that party first obtains the consent of the other party and, if
applicable, the person or persons acquiring a "50 percent or greater interest"
in the party have agreed to become jointly or severally liable for payments
required to be made by that party under the Tax Indemnification Agreement.

     Midway will indemnify WMS with respect to any action referred to above
which it takes that causes the spinoff to fail to qualify under Section 355 of
the Code, against any federal, state and local taxes, interest, penalties and
additions to tax imposed upon or incurred by the WMS Group or any member. WMS
will indemnify Midway and its subsidiaries against federal, state and local
taxes, interest, penalties and additions to tax resulting from the spinoff,
other than any of these liabilities for which Midway is required to indemnify
                                       41
<PAGE>   43

WMS. The agreement also governs the procedures for indemnification, calculation
of the amount of indemnified liability for income taxes and reduction of
indemnity by income tax benefits from indemnified liabilities.

     We also have the following agreements with Midway:

     Tax Sharing Agreement. This agreement is dated July 1, 1996 and remains in
effect, except to the extent described in the Tax Separation Agreement referred
to above. Under this agreement, WMS and Midway have agreed upon a method for:
(i) determining the amount which Midway must pay to WMS in respect of federal
income taxes; (ii) compensating any member of the WMS Group for use of its net
operating losses, tax credits and other tax benefits in arriving at the WMS
Group tax liability as determined under the federal consolidated return
regulations; and (iii) providing for the receipt of any refund arising from a
carryback of net operating losses or tax credits from subsequent taxable years
and for payments upon subsequent adjustments. The amount that Midway is required
to pay to WMS for federal income taxes is determined as if Midway was filing a
separate tax return. If any two or more members of the WMS Group are required to
elect, or WMS elects to cause two or more members of the WMS Group to file
combined or consolidated income tax returns under state or local income tax law,
the financial consequences of these filings are determined in a manner as
similar as practicable to those provided for under the Tax Sharing Agreement for
federal taxes. The Tax Sharing Agreement is not binding on the IRS or upon
state, local or foreign taxing authorities. The effectiveness of the Tax Sharing
Agreement is therefore dependent on each member of the WMS Group having the
ability to pay its relative share of taxes. Because the IRS or other taxing
authorities can be expected to seek payment from WMS prior to seeking payment
from the individual group members, it is likely that Midway would seek to
enforce any rights it may have against WMS for sharing at a time when WMS is
unable to pay its proportionate share of taxes.

     Patent License Agreement. We entered into a patent license agreement dated
July 1, 1996 with Midway under which each party licensed to the other, on a
perpetual, royalty-free basis, some patents used in the development and
manufacture of both coin-operated video games and video lottery terminals and
other gaming machines.

OTHER RELATED PARTY TRANSACTIONS

     Ira S. Sheinfeld, one of our directors, is a member of the law firm of
Squadron, Ellenoff, Plesent & Sheinfeld LLP, which we retained to provide tax
services during the last fiscal year and propose to retain for tax services
during the current fiscal year.

     Donna B. More, one of our directors, is a member of the More Law Group law
firm, which we retained to provide legal services during the last fiscal year
and propose to retain for legal services during the current fiscal year.

     William C. Bartholomay, one of our directors, is President of Near North
National Group, insurance brokers, which we retained to provide insurance
services during the last fiscal year and propose to retain for insurance
services during the current fiscal year.

                                       42
<PAGE>   44

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

     (a) (1) Financial Statements. See "Index to Financial Information" on page
         F-1.

         (2) Financial Statement Schedule. See "Index to Financial Information"
         on page F-1.

         (3) Exhibits.

<TABLE>
<C>                      <S>
          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 WMS's
                         Annual Report on Form 10-K for the year ended June 30, 1994
                         (the "1994 10-K").
          3(b)           Certificate of Amendment to the Amended and Restated
                         Certificate of Incorporation of WMS, as filed with the
                         Secretary of State of the State of Delaware on February 25,
                         1998, incorporated by reference to Exhibit 3.1 to WMS's
                         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 filed as Exhibit 1 to WMS's Registration Statement
                         on Form 8-A (File No. 1-8300) filed March 25, 1998 (the
                         "Form 8-A").
          3(d)           By-Laws of WMS, as amended and restated through June 26,
                         1996, incorporated by reference to Exhibit 3(b) to WMS's
                         Annual Report on Form 10-K for the year ended June 30, 1996.
          4              Rights Agreement dated as of March 5, 1998 between WMS and
                         The Bank of New York, as Rights Agent, incorporated by
                         reference to Exhibit B to the Form 8-A).
         10(a)           1982 Employee Stock Option Plan, as amended, incorporated by
                         reference to Exhibit 10(e) to the 1994 10-K.
         10(b)           1991 Stock Option Plan, as amended, incorporated by
                         reference to Exhibit 10(f) to the 1994 10-K.
         10(c)           1993 Stock Option Plan, incorporated by reference to Exhibit
                         10(g) to the 1994 10-K.
         10(d)           1994 Stock Option Plan, incorporated by reference to
                         Appendix A to WMS's Definitive Proxy Statement dated
                         December 12, 1994.
         10(e)           Form of Indemnity Agreement authorized to be entered into
                         between WMS and each officer and director approved by the
                         Board of Directors, incorporated by reference to Exhibit
                         10(k) to the 1994 10-K.
         10(f)           WMS Industries Inc. Treasury Share Bonus Plan adopted April
                         19, 1993, incorporated by reference to Exhibit 10(ee) to
                         WMS's Annual Report on Form 10-K for the fiscal year ended
                         June 30, 1993.
         10(g)           Voting Proxy Agreement dated September 21, 1995 among Louis
                         J. Nicastro, Neil D. Nicastro, WMS, Sumner M. Redstone and
                         National Amusements, Inc., incorporated by reference to
                         Exhibit 10(u) to WMS's Annual Report on Form 10-K for the
                         fiscal year ended June 30, 1995.
         10(h)           Tax Sharing Agreement dated as of July 1, 1996 among WMS,
                         Midway, Atari Games Corporation ("Atari") and others,
                         incorporated by reference to Exhibit 10.2 to Midway's
                         Registration Statement on Form S-1 (File No. 333-11919) (the
                         "Midway S-1").
         10(i)           Patent License Agreement dated as of July 1, 1996 among WMS,
                         Williams Electronics Games, Inc. ("WEG") and Midway,
                         incorporated by reference to Exhibit 10.4 to the Midway S-1.
</TABLE>

                                       43
<PAGE>   45
<TABLE>
<C>                      <S>
         10(j)           Amendment to Article III, Section 3 (Option Adjustments) of
                         1982 Employee Stock Option Plan, incorporated by reference
                         to Proposal No. 2 to WMS's Definitive Proxy Statement on
                         Schedule 14A as filed with the Commission on December 11,
                         1996 (the "1996 Proxy Statement").
         10(k)           Amendment to Article III, Section 3 (Option Adjustments) of
                         1991 Stock Option Plan, incorporated by reference to
                         Proposal No. 2 to the 1996 Proxy Statement.
         10(l)           Amendment to Article III, Section 3 (Option Adjustments) of
                         1993 Stock Option Plan, incorporated by reference to
                         Proposal No. 2 to the 1996 Proxy Statement.
         10(m)           Amendment to Article III, Section 3 (Option Adjustments) of
                         1994 Stock Option Plan, incorporated by reference to
                         Proposal No. 2 to the 1996 Proxy Statement.
         10(n)           1998 Non-Qualified Stock Option Plan, incorporated by
                         reference to Exhibit 4.6(a) to WMS's Registration Statement
                         No. 333-57585 on Form S-8 filed with the Commission on June
                         24, 1998.
         10(o)           Consulting Agreement dated as of April 6, 1998 between WMS
                         and Neil D. Nicastro, incorporated by reference to Exhibit 3
                         to the Report on Form 8-K filed April 17, 1998 (the "April
                         1998 8-K").
         10(p)           Employment Agreement dated as of April 6, 1998 between WMS
                         and Louis J. Nicastro, incorporated by reference to Exhibit
                         1 to the April 1998 8-K.
         10(q)           Manufacturing Agreement dated as of April 6, 1998 between
                         WEG and Midway and the Guaranty of the obligations of WEG
                         thereunder by WMS, incorporated by reference to Exhibit
                         10.23 to the Midway Annual Report on Form 10-K for the
                         fiscal year ended June 30, 1998 (the "Midway 1998 10-K").
         10(r)           Spare Parts Sales and Service Agreement dated as of April 6,
                         1998 among WEG, Midway and Atari, incorporated by reference
                         to Exhibit 10.25 to the Midway 1998 10-K.
         10(s)           Information Systems Service Agreement dated as of April 6,
                         1998 between WEG and Midway, incorporated by reference to
                         Exhibit 10.27 to the Midway 1998 10-K.
         10(t)           Confidentiality and Non-Competition Agreement dated as of
                         April 6, 1998 between WMS and Midway, incorporated by
                         reference to Exhibit 10.28 to the Midway 1998 10-K.
         10(u)           Right of First Refusal Agreement dated as of April 6, 1998
                         between WMS and Midway, incorporated by reference to Exhibit
                         10.29 to the Midway 1998 10-K.
         10(v)           Third Parties Agreement dated as of April 6, 1998 between
                         WMS and Midway, incorporated by reference to Exhibit 10.30
                         to the Midway 1998 10-K.
         10(w)           Temporary Support Services Agreement dated as of April 6,
                         1998 between WMS and Midway, incorporated by reference to
                         Exhibit 10.31 to the Midway 1998 10-K.
         10(x)           Tax Separation Agreement dated as of April 6, 1998 between
                         WMS and Midway, incorporated by reference to Exhibit 10.32
                         to the Midway 1998 10-K.
         10(y)           Tax Indemnification Agreement dated as of April 6, 1998
                         between WMS and Midway, incorporated by reference to Exhibit
                         10.33 to the Midway 1998 10-K.
         10(z)           Worldwide Merchandising Agreement/License Agreement Summary
                         and License Agreement between WMS Gaming Inc., Hasbro, Inc.
                         and Hasbro International, Inc. dated as of the first day of
                         September, 1997, incorporated by reference to Exhibit 99.1
                         to WMS's Registration Statement No. 83021 on Form S-3 filed
                         with the Commission on July 16, 1999 (the "1999 S-3").
                         Portions of this exhibit have been omitted under a request
                         for confidential treatment filed separately with the
                         Commission.
</TABLE>

                                       44
<PAGE>   46
<TABLE>
<C>                      <S>
         10(aa)          Amendment to License Agreement between WMS Gaming Inc.,
                         Hasbro, Inc. and Hasbro International, Inc. dated 1998,
                         incorporated by reference to Exhibit 99.2 to the 1999 S-3.
                         Portions of this exhibit have been omitted under a request
                         for confidential treatment filed separately with the
                         Commission.
         10(bb)          Employment Agreement between Louis J. Nicastro and WMS dated
                         September 2, 1999, incorporated by reference to Exhibit
                         10(ii) to WMS's Annual Report on Form 10-K for the fiscal
                         year ended June 30, 1999.
         10(cc)          Employment Agreement between Brian R. Gamache and WMS dated
                         as of March 21, 2000, incorporated by reference to Exhibit
                         10(a) to WMS's Quarterly Report on Form 10-Q for the fiscal
                         quarter ended March 31, 2000.
         10(dd)          2000 Non-Qualified Stock Option Plan.
         10(ee)          Employment Agreement between Scott D. Schweinfurth and WMS
                         dated May 19, 2000.
         10(ff)          Employment Agreement between Orrin J. Edidin and WMS dated
                         May 8, 2000.
         10(gg)          Employment Agreement between Terence M. Dunleavy and WMS
                         dated June 7, 2000.
         21              Subsidiaries of the Registrant.
         23              Consent of Ernst & Young LLP.
         27              Financial Data Schedule
</TABLE>

     (b) Reports on Form 8-K.

     We did not file any reports on Form 8-K in the quarter ended June 30, 2000.

                                       45
<PAGE>   47

                         INDEX TO FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                                              PAGE NO.
<S>                                                           <C>
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Report of independent auditors..............................     F-2
Consolidated balance sheets at June 30, 2000 and June 30,
  1999......................................................     F-3
Consolidated statements of operations for the years ended
  June 30, 2000, 1999 and 1998..............................     F-4
Consolidated statements of changes in stockholders' equity
  for the years ended June 30, 2000, 1999 and 1998..........     F-5
Consolidated statements of cash flows for the years ended
  June 30, 2000, 1999 and 1998..............................     F-6
Notes to consolidated financial statements..................     F-7
Financial statement schedule II -- Valuation and Qualifying
  Accounts for the years ended June 30, 2000, 1999 and
  1998......................................................    F-19
</TABLE>

     All other schedules are omitted since the required information is not
present in amounts sufficient to require submission of the schedule or because
the information required is included in the consolidated financial statements
and notes thereto.

                                       F-1
<PAGE>   48

                         REPORT OF INDEPENDENT AUDITORS

To the Stockholders and Board of Directors
WMS Industries Inc.

     We have audited the accompanying consolidated balance sheets of WMS
Industries Inc. and subsidiaries as of June 30, 2000 and 1999, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the three years in the period ended June 30, 2000. Our audits
also included the financial statement schedule listed in the Index on page F-1.
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and related schedule are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
WMS Industries Inc. and subsidiaries at June 30, 2000 and 1999, and the
consolidated results of their operations and cash flows for each of the three
years in the period ended June 30, 2000, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.

                                          /s/ ERNST & YOUNG LLP

Chicago, Illinois
August 10, 2000

                                       F-2
<PAGE>   49

                              WMS INDUSTRIES INC.

                          CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                      JUNE 30,
                                                                --------------------
                                                                  2000        1999
                                                                --------    --------
<S>                                                             <C>         <C>
                                       ASSETS

Current assets:
  Cash and cash equivalents.................................    $ 19,869    $ 58,669
  Short-term investments....................................      60,800          --
                                                                --------    --------
                                                                  80,669      58,669
  Receivables, net of allowances of $3,592 in 2000 and
     $2,883 in 1999.........................................      45,190      29,744
  Notes receivable, current portion.........................       9,076       6,561
  Income tax receivable.....................................          --       3,257
  Inventories
     Raw materials and work-in-progress.....................      10,152      11,452
     Finished goods.........................................      22,766      24,392
                                                                --------    --------
                                                                  32,918      35,844
  Assets of discontinued operations.........................       5,246      30,439
  Deferred income taxes.....................................       9,279      17,595
  Other current assets......................................       1,198         635
                                                                --------    --------
          Total current assets..............................     183,576     182,744
Gaming machines on participation or lease, net..............      16,809      19,731
Property, plant and equipment, net..........................      30,465      31,484
Other assets................................................       8,180       4,120
                                                                --------    --------
          Total assets......................................    $239,030    $238,079
                                                                ========    ========

                        LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................    $  8,352    $  7,042
  Accrued compensation and related benefits.................       3,735       2,747
  Income taxes payable......................................       2,956          --
  Accrued liability related to patent litigation............          --      38,543
  Liabilities of discontinued operations....................       8,242      12,053
  Other accrued liabilities.................................      10,325       4,990
                                                                --------    --------
          Total current liabilities.........................      33,610      65,375
Deferred income taxes.......................................          --         625
Stockholders' equity:
  Preferred stock (5,000,000 shares authorized, none
     issued)................................................          --          --
  Common stock (issued 30,920,042 shares in 2000 and
     30,428,621 shares in 1999).............................      15,460      15,214
  Additional paid-in capital................................     184,278     180,989
  Retained earnings (accumulated deficit)...................       6,064     (23,742)
  Treasury stock, at cost (77,312 shares in 2000 and
     1999)..................................................        (382)       (382)
                                                                --------    --------
          Total stockholders' equity........................     205,420     172,079
                                                                --------    --------
          Total liabilities and stockholders' equity........    $239,030    $238,079
                                                                ========    ========
</TABLE>

                See notes to consolidated financial statements.

                                       F-3
<PAGE>   50
                              WMS INDUSTRIES INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                      YEARS ENDED JUNE 30,
                                                                --------------------------------
                                                                  2000        1999        1998
                                                                --------    --------    --------
<S>                                                             <C>         <C>         <C>
REVENUES
  Machine sales.............................................    $149,080    $101,895    $ 48,820
  Participation and lease...................................      67,596      24,061       7,968
                                                                --------    --------    --------
          Total revenues....................................     216,676     125,956      56,788
                                                                --------    --------    --------
COSTS AND EXPENSES
  Cost of sales.............................................      87,264      67,748      36,470
  Cost of participation and lease revenue...................       8,342       2,547         981
  Research and development..................................      11,658       8,665       7,803
  Selling and administrative................................      40,751      27,340      20,422
  Depreciation and amortization.............................      14,346       5,941       2,472
  Adjustment to common stock options........................       1,962       3,037      59,890
  Reversal of excess accrual due to settlement of
     litigation.............................................     (15,631)         --          --
                                                                --------    --------    --------
          Total costs and expenses..........................     148,692     115,278     128,038
                                                                --------    --------    --------
Operating income (loss).....................................      67,984      10,678     (71,250)
Interest and other income...................................       3,454       3,525       4,410
                                                                --------    --------    --------
Income (loss) from continuing operations before income
  taxes.....................................................      71,438      14,203     (66,840)
Provision (benefit) for income taxes........................      27,016       5,397     (22,891)
                                                                --------    --------    --------
Income (loss) from continuing operations....................      44,422       8,806     (43,949)
Discontinued operations, net of applicable income taxes:
  Pinball and cabinets segment
     Loss from discontinued operations......................        (469)     (4,332)     (5,103)
     Costs related to discontinuance........................     (13,070)         --          --
  Contract manufacturing segment
     Income from discontinued operations....................         598         779         228
     Costs related to discontinuance........................      (1,675)         --          --
  Video games segment
     Income from discontinued operations....................          --          --      28,302
     Costs related to discontinuance........................          --          --      (1,556)
                                                                --------    --------    --------
Net income (loss)...........................................    $ 29,806    $  5,253    $(22,078)
                                                                ========    ========    ========
Basic per share of common stock:
  Income (loss) from continuing operations..................    $   1.45    $   0.30    $  (1.66)
                                                                --------    --------    --------
  Net income (loss).........................................    $   0.97    $   0.18    $  (0.84)
                                                                --------    --------    --------
Diluted per share of common stock:
  Income (loss) from continuing operations..................    $   1.42    $   0.30    $  (1.66)
                                                                --------    --------    --------
  Net income (loss).........................................    $   0.95    $   0.18    $  (0.84)
                                                                --------    --------    --------
Average number of shares outstanding -- basic...............      30,615      29,308      26,446
                                                                --------    --------    --------
Average number of shares outstanding -- diluted.............      31,322      29,511      26,446
                                                                --------    --------    --------
</TABLE>

                See notes to consolidated financial statements.

                                       F-4
<PAGE>   51
                              WMS INDUSTRIES INC.

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                  ADDITIONAL    RETAINED     TREASURY    UNREALIZED        TOTAL
                                       COMMON      PAID-IN      EARNINGS      STOCK,      HOLDING      STOCKHOLDERS'
                                        STOCK      CAPITAL      (DEFICIT)    AT COST        LOSS          EQUITY
                                       -------    ----------    ---------    --------    ----------    -------------
<S>                                    <C>        <C>           <C>          <C>         <C>           <C>
BALANCE AS OF JUNE 30, 1997........    $12,135     $ 84,673     $ 112,098     $(148)      $(12,758)      $196,000
Net loss for the year ended June
  30, 1998.........................         --           --       (22,078)       --             --        (22,078)
Decrease in unrealized loss on non-
  current investment in marketable
  equity securities................         --           --            --        --         12,758         12,758
                                                                                                         --------
Comprehensive loss.................                                                                        (9,320)
Issuance of 758,385 shares of
  common stock through exercise of
  stock
  options..........................        379       13,954            --        --             --         14,333
Issuance of 2,488,855 shares of
  common stock in conversion of
  subordinated debentures..........      1,244       55,090            --        --             --         56,334
Issuance of 515,360 shares of
  common stock relating to
  adjustment of stock options......        258       14,717            --        --             --         14,975
Tax benefit from common stock
  options..........................         --        1,984            --        --             --          1,984
Distribution of subsidiary as a
  tax-free dividend................         --           --      (119,015)       --             --       (119,015)
                                       -------     --------     ---------     -----       --------       --------
BALANCE AS OF JUNE 30, 1998........     14,016      170,418       (28,995)     (148)            --        155,291
Net income for the year ended June
  30, 1999.........................         --           --         5,253        --             --          5,253
Issuance of 2,395,855 shares of
  common stock through exercise of
  stock
  options..........................      1,198        6,893            --        --             --          8,091
Tax benefit from common stock
  options..........................         --        3,678            --        --             --          3,678
Received 25,000 treasury shares in
  lieu of cash from exercise of
  stock options....................         --           --            --      (234)            --           (234)
                                       -------     --------     ---------     -----       --------       --------
BALANCE AS OF JUNE 30, 1999........     15,214      180,989       (23,742)     (382)            --        172,079
Net income for the year ended June
  30, 2000.........................         --           --        29,806        --             --         29,806
Issuance of 491,421 shares of
  common stock through exercise of
  stock
  options..........................        246        1,333            --        --             --          1,579
Tax benefit from common stock
  options..........................         --        1,956            --        --             --          1,956
                                       -------     --------     ---------     -----       --------       --------
BALANCE AS OF JUNE 30, 2000........    $15,460     $184,278     $   6,064     $(382)      $     --       $205,420
                                       =======     ========     =========     =====       ========       ========
</TABLE>

                See notes to consolidated financial statements.

                                       F-5
<PAGE>   52
                              WMS INDUSTRIES INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                      YEARS ENDED JUNE 30,
                                                                --------------------------------
                                                                  2000        1999        1998
                                                                --------    --------    --------
<S>                                                             <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)...........................................    $ 29,806    $  5,253    $(22,078)
Adjustments to reconcile net income (loss) to net cash
  provided (used) by operating activities:
  Discontinued operations:
     Loss from pinball and cabinets segment.................         469       4,332       5,103
     Income from contract manufacturing segment.............        (598)       (779)       (228)
     Income from video games segment........................          --          --     (28,302)
     Costs related to discontinuance........................      14,745          --       1,556
  Gain on sale of marketable equity securities..............          --          --        (859)
  Depreciation and amortization.............................      14,346       5,941       2,472
  Provision for bad debts...................................       1,943       2,979       1,534
  Common stock issued in common stock option adjustment.....          --          --      14,975
  Reversal of excess accrual due to settlement of
     litigation.............................................     (15,631)         --          --
  Payment in settlement of litigation.......................     (27,000)         --          --
  Deferred income taxes.....................................      11,376         147       3,098
  Tax benefit from exercise of common stock options.........       1,956       3,678       1,984
  Increase (decrease) resulting from changes in operating
     assets and liabilities:
     Receivables............................................     (18,529)    (14,011)     (4,915)
     Income taxes...........................................      10,422       6,857     (10,114)
     Inventories............................................       4,022      (5,375)    (11,237)
     Other current assets...................................        (563)       (207)        205
     Other assets...........................................        (808)      2,854       2,800
     Accounts payable and accruals..........................       9,250       9,826      (1,241)
                                                                --------    --------    --------
Net cash provided (used) by operating activities............      35,206      21,495     (45,247)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment...................      (3,079)     (9,140)     (1,877)
Additions to gaming machines on participation or lease......      (8,860)    (20,201)       (305)
Net change in short-term investments........................     (60,800)     26,000      44,000
Proceeds from sale of marketable equity securities..........          --          --      28,617
                                                                --------    --------    --------
Net cash provided (used) by investing activities............     (72,739)     (3,341)     70,435

CASH FLOWS FROM FINANCING ACTIVITIES
Cash received on exercise of stock options..................       1,579       7,857      14,333
Redemption of long-term debt................................          --          --        (178)
                                                                --------    --------    --------
Net cash provided by financing activities...................       1,579       7,857      14,155

CASH FLOWS FROM DISCONTINUED OPERATIONS
Pinball and cabinets segment................................      (5,073)     (5,904)       (384)
Contract manufacturing segment..............................       2,227       1,619         431
Video games segment.........................................          --          --      (4,300)
                                                                --------    --------    --------
Net cash used by discontinued operations....................      (2,846)     (4,285)     (4,253)
Increase (decrease) in cash and cash equivalents............     (38,800)     21,726      35,090
Cash and cash equivalents at beginning of year..............      58,669      36,943       1,853
                                                                --------    --------    --------
Cash and cash equivalents at end of year....................    $ 19,869    $ 58,669    $ 36,943
                                                                ========    ========    ========
</TABLE>

                See notes to consolidated financial statements.

                                       F-6
<PAGE>   53

                              WMS INDUSTRIES INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: BUSINESS OVERVIEW

     WMS Industries Inc. ("WMS") is now engaged in one business segment: the
design, manufacture and marketing of slot machines (video and reel type) and
video lottery terminals. The consolidated financial statements have been
prepared in conformity with generally accepted accounting principles. Such
preparation requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.

     On April 6, 1998, WMS completed a spin-off of its 86.8% ownership interest
in Midway Games Inc. ("Midway") consisting of 33,400,000 shares of Midway common
stock, to the WMS stockholders. The activities of Midway prior to its spin-off,
which was the video game segment of WMS, are shown as a discontinued operation.

     On October 25, 1999, WMS announced the closing of its pinball and cabinets
segment and on August 10, 2000, WMS announced the discontinuance of its contract
manufacturing segment with operations expected to cease September 30, 2000.
Accordingly, the financial position, results of operations and cash flows of
these segments have been reported as discontinued operations in the consolidated
financial statements.

NOTE 2: PRINCIPAL ACCOUNTING POLICIES

  Consolidation Policy

     The consolidated financial statements include the accounts of WMS and its
majority-owned subsidiaries (the "Company"). All significant intercompany
accounts and transactions have been eliminated. Certain prior year balances have
been reclassified to conform with the current year presentation.

  Cash Equivalents

     All highly liquid investments with maturities of three months or less when
purchased are considered to be cash equivalents.

  Short-term Investments

     All investments are designated as available-for-sale and are recorded at
market value with the holding gain or loss, if any, reflected in stockholders'
equity. Short-term investments consist principally of money market preferred
stocks that generally have no fixed maturity dates but have dividend reset dates
every 49 days or less.

  Inventories

     Inventories are valued at the lower of cost (determined by the first-in,
first-out method) or market.

  Property, Plant and Equipment and Gaming Machines on Participation or Lease

     Property, plant and equipment and gaming machines on participation or lease
are stated at cost and depreciated by the straight-line method over their
estimated useful lives. Significant replacements and improvements are
capitalized. Other maintenance and repairs are expensed.

  Revenue Recognition

     Revenue is recognized from product sales when the title to the product and
the risk and rewards of ownership transfer to the customer. Participation and
lease revenue are recognized when earned.

                                       F-7
<PAGE>   54
                              WMS INDUSTRIES INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Advertising Expense

     The cost of advertising is charged to earnings as incurred and for fiscal
2000, 1999 and 1998 was $614,000, $1,011,000 and $453,000, respectively.

  Research and Development

     Research and development costs are expensed as incurred.

  Reconciliation of Numerators and Denominators of the Basic and Diluted
Earnings per Share from Continuing Operations

     The reconciliation of the basic to diluted earnings per share for the
fiscal years ended June 30, 2000 and 1999 is as follows:

<TABLE>
<CAPTION>
                                                                 YEAR ENDED JUNE 30, 2000
                                                              ------------------------------
                                                                                   PER-SHARE
                                                              INCOME     SHARES     AMOUNT
                                                              -------    ------    ---------
                                                                  (IN THOUSANDS, EXCEPT
                                                                    PER SHARE AMOUNTS)
<S>                                                           <C>        <C>       <C>
Basic EPS.................................................    $44,422    30,615      $1.45
Effect of Dilutive Securities -- Stock Options............         --       707       0.03
                                                              -------    ------      -----
Diluted EPS...............................................    $44,422    31,322      $1.42
                                                              =======    ======      =====
</TABLE>

<TABLE>
<CAPTION>
                                                                 YEAR ENDED JUNE 30, 1999
                                                              ------------------------------
                                                                                   PER-SHARE
                                                              INCOME     SHARES     AMOUNT
                                                              -------    ------    ---------
                                                                  (IN THOUSANDS, EXCEPT
                                                                    PER SHARE AMOUNTS)
<S>                                                           <C>        <C>       <C>
Basic EPS.................................................    $ 8,806    29,308      $0.30
Effect of Dilutive Securities -- Stock Options............         --       203       0.00
                                                              -------    ------      -----
Diluted EPS...............................................    $ 8,806    29,511      $0.30
                                                              =======    ======      =====
</TABLE>

     The reconciliation for the year ended June 30, 1998 is not presented as the
effect is anti-dilutive.

     Options to purchase 290,000 shares of common stock at $12.33 per share were
outstanding during the last quarter of the year ended June 30, 2000 but were not
included in the computation of diluted earnings per share because the options'
exercise price was greater than the average market price of the common shares
for the quarter. The options, which expire during the year ended June 30, 2010,
were still outstanding as of June 30, 2000.

     Options to purchase 45,000 shares of common stock at $14.87 per share were
outstanding during the last quarter of the year ended June 30, 1999 but were not
included in the computation of diluted earnings per share because the options'
exercise price was greater than the average market price of the common shares
for the quarter. These options, which expire during the year ended June 30,
2009, were still outstanding as of June 30, 1999.

NOTE 3: DISCONTINUED OPERATIONS

     As discussed in Note 1, on April 6, 1998 WMS completed the spinoff of
Midway, on October 25, 1999, WMS announced the closing of its pinball and
cabinets segment and on August 10, 2000, WMS announced the discontinuance of its
contract manufacturing segment with operations expected to cease effective
September 30, 2000. Accordingly, the financial position, results of operations
and cash flows of these businesses have been reported as discontinued operations
in the consolidated financial statements.

     By January 2000, manufacturing activities for the pinball and cabinet
segment were completed. All finished goods have been disposed of and any
remaining assets, including raw material inventory and
                                       F-8
<PAGE>   55
                              WMS INDUSTRIES INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

equipment, are expected to be sold or disposed of at the earliest practical
date. At June 30, 2000, the assets of the pinball and cabinets segment consisted
of trade receivables, inventories and plant and equipment amounting to $4.1
million after deducting an allowance of $7.9 million for write-downs to
estimated realizable value. The liabilities related to discontinued operations
were $5.7 million, including $3.3 million of reserves established for shutdown
costs and estimated operating losses through the disposal date. The Company
recorded a $21.3 million pre-tax loss for the closing of these operations,
including cash expenses of $10.1 million, for projected operating losses through
the disposal date, severance pay, and shut down expenses. The loss on disposal
included $11.2 million in non-cash losses for the write-downs of receivables,
inventory, plant and equipment to net realizable value. Tax benefits related to
the loss on disposal were estimated to be $8.1 million. The diluted loss per
share from the discontinued pinball and cabinet segment was $0.43, $0.15, and
$0.19, respectively, for the years ended June 30, 2000, 1999 and 1998.

     The condensed statement of operations for the pinball and cabinets segment
for the fiscal years ended June 30, 2000, 1999 and 1998 is as follows:

<TABLE>
<CAPTION>
                                                              2000       1999       1998
                                                             -------    -------    -------
                                                                    (IN THOUSANDS)
<S>                                                          <C>        <C>        <C>
Revenues.................................................    $25,499    $46,109    $38,251
Costs and expenses.......................................     26,255     53,097     46,012
                                                             -------    -------    -------
Loss before tax provision................................       (756)    (6,988)    (7,761)
Benefit for income taxes.................................       (287)    (2,656)    (2,658)
                                                             -------    -------    -------
Net loss.................................................    $  (469)   $(4,332)   $(5,103)
                                                             =======    =======    =======
</TABLE>

     Management expects to cease contract manufacturing of video games by
September 30, 2000. Any remaining assets, including inventory and equipment, are
expected to be sold or disposed of at the earliest practical date. At June 30,
2000, the assets of the contract manufacturing segment consisted of trade
receivables, inventories and plant and equipment amounting to $1.1 million after
deducting an allowance of $1.6 million for write-downs to estimated realizable
value. The liabilities related to discontinued operations were $2.5 million,
including $1.2 million of reserves established for shutdown costs through the
disposal date. The Company recorded a $2.8 million pre-tax loss related to the
disposal, including cash expenses of $1.2 million, for severance pay and shut
down expenses. The loss on disposal included $1.6 million in non-cash losses for
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 diluted income (loss) per share from the discontinued contract
manufacturing segment was $(0.03), $0.03, and $0.01, respectively, for the years
ended June 30, 2000, 1999 and 1998.

     The condensed statement of operations for the contract manufacturing
segment for the fiscal years ended June 30, 2000, 1999 and 1998 is as follows:

<TABLE>
<CAPTION>
                                                               2000       1999       1998
                                                              -------    -------    ------
                                                                     (IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
Revenues..................................................    $11,118    $15,225    $3,951
Costs and expenses........................................     10,153     13,968     3,604
                                                              -------    -------    ------
Income before tax provision...............................        965      1,257       347
Provision for income taxes................................        367        478       119
                                                              -------    -------    ------
Net income................................................    $   598    $   779    $  228
                                                              =======    =======    ======
</TABLE>

     As discussed in Note 1, on April 6, 1998, the Company completed a spin-off
of its 86.8% interest in Midway. Net assets of the video games segment of
$119,015,000 at the time of spin-off were recorded as a reduction of retained
earnings from the tax-free dividend.

                                       F-9
<PAGE>   56
                              WMS INDUSTRIES INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     In conjunction with the Midway spin-off, at the request of the Board of
Directors, on April 6, 1998 Neil D. Nicastro resigned as President, Chief
Executive Officer and Chief Operating Officer of WMS to devote his full time to
Midway as Chairman of the Board, President, Chief Executive Officer and Chief
Operating Officer. Neil D. Nicastro agreed to the early termination and full
settlement of his employment agreement with WMS pursuant to which, in lieu of
all future payments of base salary, bonus, retirement and death benefits, he
received a payment of $2,500,000 and a 10 year option to purchase 250,000 shares
of the Company's common stock. The payment less income tax benefit of $861,000
and amounts previously accrued under his employment agreement are included in
discontinuance costs in fiscal 1998. Other discontinuance costs of $150,000 were
accrued in connection with the Midway spin-off in addition to $1,650,000 accrued
at June 30, 1997. The diluted income per share from the discontinued video games
segment was $1.01 for the year ended June 30, 1998.

     The condensed statement of operations for Midway for the nine months ended
March 31, 1998 is as follows:

<TABLE>
<CAPTION>
                                                                   1998
                                                                   ----
                                                              (IN THOUSANDS)
<S>                                                           <C>
Revenues....................................................     $293,144
Cost and expenses...........................................      242,850
                                                                 --------
Operating income............................................       50,294
Interest and other income, net..............................        2,326
                                                                 --------
Income before tax provision.................................       52,620
Provision for income taxes..................................       19,996
                                                                 --------
Net income..................................................     $ 32,624
                                                                 ========
</TABLE>

     The income from discontinued operations of the video games segment for the
nine months ended March 31, 1998 shown in the WMS consolidated statements of
operations is equal to net income of Midway reduced by minority interest in
income of $4,322,000.

NOTE 4: PROPERTY, PLANT AND EQUIPMENT AND GAMING MACHINES ON PARTICIPATION OR
LEASE

     At June 30 net property, plant and equipment were:

<TABLE>
<CAPTION>
                                                                  2000        1999
                                                                --------    --------
                                                                   (IN THOUSANDS)
<S>                                                             <C>         <C>
Land........................................................    $  2,985    $  2,985
Buildings and improvements..................................      25,926      25,333
Machinery and equipment.....................................      18,426      16,246
Furniture and fixtures......................................       2,548       2,214
                                                                --------    --------
                                                                  49,885      46,778
Less accumulated depreciation...............................     (19,420)    (15,294)
                                                                --------    --------
Net property, plant and equipment...........................    $ 30,465    $ 31,484
                                                                ========    ========
</TABLE>

     At June 30 net gaming machines on participation or lease were:

<TABLE>
<CAPTION>
                                                                  2000       1999
                                                                --------    -------
                                                                  (IN THOUSANDS)
<S>                                                             <C>         <C>
Gaming machines.............................................    $ 35,726    $26,866
Less accumulated depreciation...............................     (18,917)    (7,135)
                                                                --------    -------
Net gaming machines on participation or lease...............    $ 16,809    $19,731
                                                                ========    =======
</TABLE>

                                      F-10
<PAGE>   57
                              WMS INDUSTRIES INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5: ACCRUED LIABILITIES

     At June 30 other accrued liabilities were:

<TABLE>
<CAPTION>
                                                                 2000       1999
                                                                -------    ------
                                                                 (IN THOUSANDS)
<S>                                                             <C>        <C>
Accrued property taxes......................................    $ 1,024    $  452
Royalties payable...........................................      1,931     1,168
Sales taxes payable.........................................      1,195       675
Liability under tax sharing agreement.......................      2,800        --
Other accrued liabilities...................................      3,375     2,695
                                                                -------    ------
          Total other accrued liabilities...................    $10,325    $4,990
                                                                =======    ======
</TABLE>

NOTE 6: INCOME TAXES

     Significant components of the provision (benefit) for income taxes for the
years ended June 30, 2000, 1999 and 1998 were:

<TABLE>
<CAPTION>
                                                             2000       1999        1998
                                                            -------    -------    --------
                                                                    (IN THOUSANDS)
<S>                                                         <C>        <C>        <C>
Current
  Federal...............................................    $11,828    $ 1,490    $(24,438)
  State.................................................      1,856         82      (3,535)
                                                            -------    -------    --------
          Total current.................................     13,684      1,572     (27,973)
                                                            -------    -------    --------
Deferred
  Federal...............................................     10,478       (356)      2,679
  State.................................................        898        (34)        419
  Change in state allocations...........................         --        537          --
                                                            -------    -------    --------
          Total deferred................................     11,376        147       3,098
                                                            -------    -------    --------
Provision for tax benefits resulting from stock
  options...............................................      1,956      3,678       1,984
                                                            -------    -------    --------
Provision (benefit) for income taxes on continuing
  operations............................................     27,016      5,397     (22,891)
                                                            -------    -------    --------
Provision (benefit) for income taxes on discontinued
  operations............................................     (9,246)    (2,178)     16,596
                                                            -------    -------    --------
Income tax provision (benefit), net.....................    $17,770    $ 3,219    $ (6,295)
                                                            =======    =======    ========
</TABLE>

                                      F-11
<PAGE>   58
                              WMS INDUSTRIES INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Deferred income taxes reflect the net tax effects of temporary differences
between the amount of assets and liabilities for financial reporting purposes
and the amounts used for income taxes. Significant components of the Company's
deferred tax assets and liabilities at June 30 were:

<TABLE>
<CAPTION>
                                                                  2000        1999
                                                                --------    --------
                                                                   (IN THOUSANDS)
<S>                                                             <C>         <C>
Deferred tax assets resulting from
  Inventory valuation.......................................    $  1,702    $  1,758
  Receivables valuation.....................................       1,512         830
  Book over tax depreciation................................       2,092          --
  Discontinued operations...................................       5,517       1,189
  Accrued items not currently deductible....................         303         507
  Accruals relating to litigation...........................          --      15,500
  Other.....................................................         476          --
                                                                --------    --------
          Total deferred tax assets.........................    $ 11,602    $ 19,784
                                                                --------    --------
Deferred tax liabilities resulting from
  Tax over book depreciation................................          --         650
  Federal tax benefit of deferred state taxes...............         605         897
  Other.....................................................          --       1,267
                                                                --------    --------
          Total deferred tax liabilities....................         605       2,814
                                                                --------    --------
Net deferred tax assets.....................................    $ 10,997    $ 16,970
                                                                ========    ========
</TABLE>

     The provision (benefit) for income taxes on continuing operations differs
from the amount computed using the statutory federal income tax rate as follows:

<TABLE>
<CAPTION>
                                                                2000    1999    1998
                                                                ----    ----    -----
                                                                   (IN THOUSANDS)
<S>                                                             <C>     <C>     <C>
Statutory federal income tax rate...........................    35.0%   35.0%   (35.0%)
State income taxes, net of federal benefit..................     2.9     8.7     (2.7)
Dividend received deduction on investment income............    (0.4)   (5.1)      --
Stock option adjustment cost not deductible.................      --      --      3.5
Other, net..................................................     0.3    (0.6)      --
                                                                ----    ----    -----
                                                                37.8%   38.0%   (34.2%)
                                                                ====    ====    =====
</TABLE>

     Taxes paid in the years ended June 30, 2000 and 1999 were $5,900,000 and
$31,000, respectively. Refunds received in the years ended June 30, 2000 and
1999 were $2,080,000 and $4,642,000, respectively. No tax payments were made and
no tax refunds were received in the year ended June 30, 1998.

NOTE 7: LINE OF CREDIT AND LONG-TERM DEBT

     The Company has an unused line of credit for $25,000,000 under a revolving
credit agreement for a one-year term to August 1, 2001 which contains usual
credit terms for a bank line. No borrowing occurred on the line in the year
ended June 30, 2000 or 1999.

     The Company has an unused line of credit for $2,000,000 for issuance of
letters of credit and foreign exchange transactions, which contains usual credit
terms for a bank line. The agreement expires on August 1, 2002.

     During fiscal 1998, as a result of a call for redemption on September 22,
1997 of 33% of the $57,500,000 in outstanding debentures and a call for
redemption on October 29, 1997 of the remaining outstanding

                                      F-12
<PAGE>   59
                              WMS INDUSTRIES INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

debentures, debentures with an aggregate principal amount of $57,322,000 were
converted into 2,488,855 shares of WMS common stock and $178,000 of such
debentures were redeemed.

NOTE 8: STOCKHOLDERS' EQUITY AND COMMON STOCK PLANS

     Authorized common stock of the Company consists of 100,000,000 shares of
$.50 par value. At June 30, 2000, 4,236,817 shares of common stock were reserved
for possible issuance under stock option plans. Additionally, there are
5,000,000 shares of $.50 par value preferred stock authorized. The preferred
stock is issuable in series, and the relative rights and preferences and the
number of shares in each series are to be established by the Board of Directors.

     At the date of the Midway spin-off the WMS Rights Agreement became
effective. Under the Rights Agreement, each share of WMS common stock has an
accompanying Right to purchase, under certain conditions, one one-hundredth of a
share of the Company's Series A Preferred Stock at an exercise price of $100,
permitting each holder to receive $200 worth of the Company's common stock
valued at the then current market price. The rights become exercisable if any
person or entity that did not, before the Plan was adopted, own 15% or more of
our common stock acquires beneficial ownership of 15% or more of our common
stock. The Rights are redeemable by the Company at $.01 per Right, subject to
certain conditions, at any time and expire in 2007.

     Under the stock option plans, the Company may grant both incentive stock
options and nonqualified options on shares of common stock through the year
2010. Options may be granted to employees and under certain conditions to
non-employee directors and consultants. The stock option committee has the
authority to fix the terms and conditions upon which each employee option is
granted, but in no event shall the term exceed ten years or generally be granted
at less than 100% of the fair market value of the stock on the date of grant.

     On September 30, 1997, the Company entered into an agreement with each of
the holders of all of the common stock options then outstanding, which were
exercisable into 4,089,011 shares of WMS common stock, regarding an option
adjustment in connection with the Midway spin-off. On the spin-off record date
of March 31, 1998, the Company recorded a pre-tax charge of $59,890,000 for the
adjustment to stock options, pursuant to the anti-dilution provision of the
Company's stock option plans, to compensate the holders for the lost opportunity
value represented by the shares of Midway distributed in the spin-off which
option holders did not participate in. Of that amount, cash payments on April 6,
1998 totaled $35,001,000, and 515,360 pre-spin-off shares of WMS common stock
were issued valued at $14,974,000. An additional $4,179,000 was paid in the
fourth quarter of fiscal 1998 and $779,000 was accrued for the Company's portion
of payroll tax. Expense related to the adjustment of stock options that were not
vested as of June 30, 1998 is being recorded and paid consistent with the
options' vesting schedule. During fiscal 2000 and 1999, $1,962,000 and
$3,037,000 of such expense was recorded, respectively. At June 30, 2000, the
maximum additional future pre-tax expense related to non-vested stock options is
$196,000 plus interest.

     At the request of the Board of Directors, in lieu of receiving from the
Company the adjustment in connection with the Midway spin-off, Louis J.
Nicastro, Chairman of the Board, exercised all of his 629,554 WMS common stock
options and sold the shares of common stock on March 19, 1998. The cash received
by the Company of $13,437,000 from exercise of these options was then available
for the stock option adjustment payments. Louis J. Nicastro received $4,957,000
from the Company as compensation for the difference between what the Company
would have paid him for his stock option adjustment and the net amount he
received from exercise and sale of the stock options.

     The Company accounts for stock options for purposes of determining net
income in accordance with APB No. 25.

                                      F-13
<PAGE>   60
                              WMS INDUSTRIES INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     A summary of the status of the Company's stock option plans for the three
years ended June 30, 2000 was as follows:

<TABLE>
<CAPTION>
                                                                                   WEIGHTED
                                                                  SHARES           AVERAGE
                                                              (IN THOUSANDS)    EXERCISE PRICE
                                                              --------------    --------------
<S>                                                           <C>               <C>
Outstanding at June 30, 1997................................       4,122            $19.51
Exercised...................................................        (663)            21.22
                                                                  ------
Outstanding at modification date (4/6/98)...................       3,459             19.18
                                                                  ------
Activity after 4/6/98 modification:
Outstanding as modified.....................................       3,459              3.16
Granted.....................................................       1,041              5.16
Exercised...................................................         (94)             2.57
                                                                  ------
Outstanding at June 30, 1998................................       4,406              3.65
Granted.....................................................         456              9.93
Exercised...................................................      (2,396)             3.38
Forfeited...................................................        (137)             3.67
                                                                  ------
Outstanding at June 30, 1999................................       2,329              5.16
Granted.....................................................       1,103              9.62
Exercised...................................................        (491)             3.21
Forfeited...................................................        (261)             6.56
                                                                  ------
Outstanding at June 30, 2000................................       2,680              6.97
                                                                  ======
</TABLE>

     The following tables summarize information about stock options outstanding
at June 30, 2000:

<TABLE>
<CAPTION>
                                           OPTIONS OUTSTANDING                        OPTIONS EXERCISABLE
                            -------------------------------------------------    -----------------------------
                                               WEIGHTED
                                               AVERAGE
                              NUMBER          REMAINING           WEIGHTED         NUMBER          WEIGHTED
                            OUTSTANDING    CONTRACTUAL LIFE       AVERAGE        OUTSTANDING       AVERAGE
RANGE OF EXERCISE PRICES       (000)           IN YEARS        EXERCISE PRICE       (000)       EXERCISE PRICE
------------------------    -----------    ----------------    --------------    -----------    --------------
<S>                         <C>            <C>                 <C>               <C>            <C>
$ 2.51 - $ 3.75........          616             3.9               $3.39              570           $3.37
  4.32 -   5.44........          743             7.8                5.12              611            5.26
  7.13 -  10.50........          986             9.5                8.84               28            9.59
 10.75 -  15.00........          335             9.6               12.12              177           11.65
                               -----                                                -----
  2.51 -  15.00........        2,680             7.7                6.97            1,386            5.38
</TABLE>

     At June 30, 2000, 1,557,000 shares were available for future grants under
the plans. At June 30, 1999, 1,566,000 options with a weighted average exercise
price of $4.03 per share were exercisable. At June 30, 1998, 3,799,000 options
with a weighted average exercise price of $3.66 per share were exercisable.

     On April 6, 1998, the Board of Directors reduced the exercise price of each
option by approximately 83.5% to reflect the initial post Midway spin-off
trading price of WMS common stock. This modification did not result in any
additional pro forma compensation expense.

     The Company has a Treasury Share Bonus Plan for key employees covering all
the shares of common stock held in the treasury. The vesting and other terms of
the awards are flexible. No awards of treasury stock were outstanding at June
30, 2000 or 1999.

                                      F-14
<PAGE>   61
                              WMS INDUSTRIES INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     SFAS No. 123 regarding stock option plans permits the use of APB 25 but
requires the inclusion of certain pro forma disclosures in the footnotes. Pro
forma net income (loss) and net income (loss) per share adjusted for the pro
forma expense provisions of SFAS No. 123 were:

<TABLE>
<CAPTION>
                                                          2000            1999            1998
                                                        ---------       --------       ----------
                                                        (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                     <C>             <C>            <C>
Pro forma net income (loss).........................     $28,646         $4,784         $(25,850)
Pro forma net income (loss) per share:
  Basic.............................................     $  0.94         $ 0.16         $  (0.98)
  Diluted...........................................     $  0.91         $ 0.16         $  (0.98)
</TABLE>

     The fiscal 1998 pro forma net loss includes an after tax charge of
$1,747,000 for the granting of Midway options.

     The pro forma fair value of each option grant is estimated on the date of
grant or modification using the Black-Scholes option pricing model with the
following weighted average assumptions used for modifications and grants in
fiscal 2000, 1999 and 1998: dividend yield 0% for all three years; expected
volatility of .75 in fiscal 2000, .80 for fiscal 1999 and .37 for fiscal 1998;
risk free interest rates of 6.00% in 2000, 5.95% in 1999 and 5.65% in 1998; and
expected life of the options of 6 years for 2000, 1999 and 1998. The weighted
average pro forma fair value, using the Black-Scholes assumptions noted above,
of the options granted during fiscal 2000, 1999 and 1998 was $6.75, $7.22 and
$2.36, respectively.

NOTE 9: CONCENTRATION OF CREDIT AND MARKET RISK AND FAIR VALUE DISCLOSURES OF
FINANCIAL INSTRUMENTS

     Financial instruments which potentially subject the Company to
concentrations of credit and market risk consist primarily of cash equivalents,
short term investments and trade notes and accounts receivable. By policy, the
Company places its cash equivalents and short-term investments only in high
credit quality securities and limits the amounts invested in any one security.
The accounts and notes receivable from the sale of gaming devices are generally
from a large number of customers with no significant concentration other than in
Nevada.

     In fiscal 2000, one domestic customer accounted for approximately 10.3% of
consolidated sales, and less than 10% in the prior years.

     The amount reported for cash equivalents and short-term investments is
considered to be a reasonable estimate of their fair value.

NOTE 10: LEASE COMMITMENTS

     The Company leases certain of its office facilities and equipment under
non-cancelable operating leases with net future lease commitments for minimum
rentals at June 30, 2000 as follows:

<TABLE>
<CAPTION>
                                                              (IN THOUSANDS)
<S>                                                           <C>
2001........................................................      $  692
2002........................................................         557
2003........................................................         543
2004........................................................         480
2005........................................................         434
Thereafter..................................................          60
                                                                  ------
                                                                  $2,766
                                                                  ======
</TABLE>

                                      F-15
<PAGE>   62
                              WMS INDUSTRIES INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Rent expense for fiscal 2000, 1999 and 1998 was $1,340,000, $1,332,000 and
$1,066,000, respectively.

NOTE 11: PENSION PLANS

     During fiscal 1992 and 1998, the Company suspended the salary and hourly
defined benefit plans and substituted defined contribution employee retirement
savings plans. The components of net periodic pension cost of the defined
benefit plans, for the fiscal years ended June 30, were:

<TABLE>
<CAPTION>
                                                                2000     1999     1998
                                                                -----    -----    -----
                                                                    (IN THOUSANDS)
<S>                                                             <C>      <C>      <C>
Service costs...............................................    $  20    $  --    $ 107
Interest cost...............................................      247      289      372
Expected return on plan assets..............................     (181)    (112)    (155)
Net amortization of transition and other....................      137        2      (43)
                                                                -----    -----    -----
Benefit cost................................................    $ 223    $ 179    $ 281
                                                                =====    =====    =====
</TABLE>

<TABLE>
<CAPTION>
                                                                 2000       1999
                                                                -------    -------
                                                                  (IN THOUSANDS)
<S>                                                             <C>        <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year.....................    $ 3,664    $ 4,683
Service cost................................................         20         --
Interest cost...............................................        247        289
Actuarial gains.............................................       (276)      (297)
Benefit paid................................................       (431)    (1,011)
                                                                -------    -------
Benefit obligation at end of year...........................      3,224      3,664
                                                                -------    -------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year..............      2,020      2,790
Actual return on plan assets................................        163        120
Company contributions.......................................        347        141
Benefits paid and expenses..................................       (451)    (1,031)
                                                                -------    -------
Fair value of plan assets at end of year....................      2,079      2,020
                                                                -------    -------
Underfunded status of the plan..............................     (1,145)    (1,644)
Unrecognized amounts........................................        563        903
                                                                -------    -------
Accrued benefit cost........................................    $  (582)   $  (741)
                                                                =======    =======
WEIGHTED-AVERAGE ASSUMPTIONS AS OF JUNE 30
Discount rate...............................................        7.5%       7.5%
Expected return on plan assets..............................        9.0        9.0
AMOUNT RECOGNIZED IN THE CONSOLIDATED BALANCE SHEET CONSISTS
  OF:
Accrued benefit liability...................................    $(1,145)   $(1,644)
Intangible asset............................................        563        903
                                                                -------    -------
Net amount recognized.......................................    $  (582)   $  (741)
                                                                =======    =======
</TABLE>

     The Company has two defined contribution employee retirement savings plans.
These defined contribution plans cover certain hourly and salaried employees.
The Company's contributions to these plans are based on employee participation
with certain limitations. The Company may change any of the factors which
determine the Company's contribution to such plans. A subsidiary is required to
make contributions on behalf of unionized employees to defray part of the costs
of the multi-employer pension plan established by its labor

                                      F-16
<PAGE>   63
                              WMS INDUSTRIES INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

union. Such contributions are computed using a fixed charge per employee.
Contributions to the defined contribution and multi-employer plans for fiscal
2000, 1999 and 1998 were $437,000, $303,000 and $207,000, respectively.

NOTE 12: QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

     Summarized quarterly financial information for fiscal 2000 and 1999 is as
follows, and has been restated to reflect discontinued operations of the pinball
and cabinets business and the contract manufacturing segment:

<TABLE>
<CAPTION>
                                                    SEPT. 30    DEC. 31    MAR. 31    JUNE 30
                                                      1999       1999       2000       2000
                                                    --------    -------    -------    -------
                                                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                 <C>         <C>        <C>        <C>
FISCAL 2000 QUARTERS
Revenues........................................    $48,020     $51,830    $49,139    $67,687
Gross profit....................................     27,806      28,457     28,416     36,391
Net income (loss)...............................     (4,720)     15,558      7,709     11,259
Per share of common stock:
Basic:
  Net income (loss).............................    $ (0.15)    $  0.51    $  0.25    $  0.37
                                                    -------     -------    -------    -------
  Shares used...................................     30,488      30,573     30,726     30,780
                                                    -------     -------    -------    -------
Diluted:
  Net income (loss).............................    $ (0.15)    $  0.50    $  0.25    $  0.36
                                                    -------     -------    -------    -------
  Shares used...................................     30,488      31,305     31,361     31,401
                                                    -------     -------    -------    -------
</TABLE>

     The December 31, 1999, March 31, 2000 and June 30, 2000 quarters include an
after-tax charge of $565,000, $0.02 per diluted share, $528,000, $0.02 per
diluted share and $105,000, nil per diluted share, respectively, for the
spin-off related adjustment to WMS outstanding common stock options vesting
during each quarter. The December 31, 1999 and June 30, 2000 quarters include an
after-tax reversal of an excess accrual of $8,187,000, $0.26 per diluted share,
and $1,532,000, $0.05 per diluted share, respectively, related to the settlement
of litigation. The September 30, 1999 quarter includes an after-tax charge of
$13,539,000, $0.44 per diluted share, for the discontinuance of the pinball and
cabinet business. The September 30, 1999, December 31, 1999 and March 31, 2000
quarters include after-tax earnings of $145,000, nil per diluted share,
$148,000, nil per diluted share, and $162,000, $0.01 per diluted share,
respectively, for the discontinued

                                      F-17
<PAGE>   64
                              WMS INDUSTRIES INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

contract manufacturing segment. The June 30, 2000 quarter includes an after-tax
charge of $1,532,000, $0.05 per diluted share, for the discontinued contract
manufacturing segment.

<TABLE>
<CAPTION>
                                                            SEPT. 30    DEC. 31    MAR. 31    JUNE 30
                                                              1998       1998       1999       1999
                                                            --------    -------    -------    -------
                                                            (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                         <C>         <C>        <C>        <C>
FISCAL 1999 QUARTERS
Revenues................................................    $18,844     $25,575    $34,665    $46,872
Gross profit............................................      6,415       9,997     15,062     24,187
Net income (loss).......................................     (1,644)     (1,235)     1,837      6,295
Per share of common stock:
Basic:
  Net income (loss).....................................    $ (0.06)    $ (0.04)   $  0.06    $  0.21
                                                            -------     -------    -------    -------
  Shares used...........................................     27,988      29,039     30,055     30,196
                                                            -------     -------    -------    -------
Diluted:
  Net income (loss).....................................    $ (0.06)    $ (0.04)   $  0.06    $  0.20
                                                            -------     -------    -------    -------
  Shares used...........................................     27,988      29,514     30,800     31,168
                                                            -------     -------    -------    -------
</TABLE>

     The December 31, 1998, March 31, 1999 and June 30, 1999 quarters include an
after-tax charge of $375,000, $0.01 per diluted share, $330,000, $0.01 per
diluted share and $1,178,000, $0.04 per diluted share, respectively, for the
spin-off related adjustment to WMS outstanding common stock options vesting
during each quarter. The September 30, 1998, December 31, 1998, March 31, 1999
and June 30, 1999 quarters include an after-tax loss of $1,590,000, $0.06 per
diluted share, $2,111,000, $0.07 per diluted share, $1,252,000, $0.04 per
diluted share and income of $621,000, $0.02 per diluted share, respectively, for
the discontinued pinball and cabinet business. The September 30, 1998, December
31, 1998, March 31, 1999 and June 30, 1999 quarters include after-tax earnings
of $146,000, $0.01 per diluted share, $252,000, $0.01 per diluted share,
$206,000, $0.01 per diluted share and $175,000, $0.01 per diluted share,
respectively, for the discontinued contract manufacturing segment.

                                      F-18
<PAGE>   65

                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
                    YEARS ENDED JUNE 30, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
                                              COLUMN C
          COLUMN A              COLUMN B     ADDITIONS      COLUMN D             COLUMN E
-----------------------------  -----------   ----------   ------------   -------------------------
                               BALANCE AT     CHARGED       CHARGED        BALANCE       BALANCE
                                BEGINNING        TO            TO        DEDUCTIONS-       AT
                                   OF        COSTS AND       OTHER         AMOUNTS       END OF
         DESCRIPTION             PERIOD       EXPENSES      ACCOUNTS     WRITTEN OFF     PERIOD
         -----------           -----------   ----------   ------------   -----------   -----------
<S>                            <C>           <C>          <C>            <C>           <C>
Allowance for receivables:(1)
  2000.......................  $ 2,883,000   $1,943,000   $         --   $1,234,000    $ 3,592,000
  1999.......................  $ 2,197,000   $2,979,000   $         --   $2,293,000    $ 2,883,000
  1998.......................  $   663,000   $1,534,000   $         --   $       --    $ 2,197,000
Unrealized holding loss on
  noncurrent marketable
  equity securities:
  2000.......................  $        --   $       --   $         --   $       --    $        --
  1999.......................  $        --   $       --   $         --   $       --    $        --
  1998.......................  $12,758,000   $       --   $(12,758,000)  $       --    $        --
Reserves for asset
  write-downs related to
  discontinued operations:
2000.........................  $        --   $12,794,000  $         --   $3,264,000    $ 9,530,000
1999.........................  $        --   $       --   $         --   $       --    $        --
1998.........................  $        --   $       --   $         --   $       --    $        --
</TABLE>

-------------------------
(1) Restated for effect of discontinued operations.

                                      F-19
<PAGE>   66

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on the
25th day of September, 2000.

                                          WMS INDUSTRIES INC.

                                          By:     /s/ LOUIS J. NICASTRO
                                            ------------------------------------
                                                     Louis J. Nicastro
                                              Chairman of the Board, President
                                                and Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been duly signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
                   SIGNATURE                                   TITLE                       DATE
                   ---------                                   -----                       ----
<C>                                               <S>                               <C>

             /s/ LOUIS J. NICASTRO                Chairman of the Board,            September 25, 2000
------------------------------------------------    President, Chief Executive
               Louis J. Nicastro                    Officer and Director
                                                    (Principal Executive Officer)

           /s/ SCOTT D. SCHWEINFURTH              Executive Vice President, Chief   September 25, 2000
------------------------------------------------    Financial Officer and
             Scott D. Schweinfurth                  Treasurer (Principal Financial
                                                    and Principal Accounting
                                                    Officer)

              /s/ NORMAN J. MENELL                Vice Chairman of the Board of     September 25, 2000
------------------------------------------------    Directors
                Norman J. Menell

           /s/ WILLIAM C. BARTHOLOMAY             Director                          September 25, 2000
------------------------------------------------
             William C. Bartholomay

             /s/ WILLIAM E. MCKENNA               Director                          September 25, 2000
------------------------------------------------
               William E. McKenna

              /s/ NEIL D. NICASTRO                Director                          September 25, 2000
------------------------------------------------
                Neil D. Nicastro

                /s/ HARVEY REICH                  Director                          September 25, 2000
------------------------------------------------
                  Harvey Reich

             /s/ DAVID M. SATZ, JR.               Director                          September 25, 2000
------------------------------------------------
               David M. Satz, Jr.

              /s/ IRA S. SHEINFELD                Director                          September 25, 2000
------------------------------------------------
                Ira S. Sheinfeld

               /s/ DONNA B. MORE                  Director                          September 25, 2000
------------------------------------------------
                 Donna B. More
</TABLE>
<PAGE>   67
                                  EXHIBIT INDEX


EXHIBIT
NUMBER    DESCRIPTION
-------   -----------

  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
          WMS's Annual Report on Form 10-K for the year ended June
          30, 1994 (the "1994 10-K").

  3(b)    Certificate of Amendment to the Amended and Restated
          Certificate of Incorporation of WMS, as filed with the
          Secretary of State of the State of Delaware on February
          25, 1998, incorporated by reference to Exhibit 3.1 to
          WMS's 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 filed as Exhibit 1 to WMS's Registration
          Statement on Form 8-A (File No. 1-8300) filed March 25,
          1998 (the "Form 8-A").

  3(d)    By-Laws of WMS, as amended and restated through June 26,
          1996, incorporated by reference to Exhibit 3(b) to WMS's
          Annual Report on Form 10-K for the year ended June 30,
          1996.

  4       Rights Agreement dated as of March 5, 1998 between WMS and The
          Bank of New York, as Rights Agent, incorporated by reference
          to Exhibit B to the Form 8-A).

 10(a)    1982 Employee Stock Option Plan, as amended, incorporated by
          reference to Exhibit 10(e) to the 1994 10-K.

 10(b)    1991 Stock Option Plan, as amended, incorporated by reference
          to Exhibit 10(f) to the 1994 10-K.

 10(c)    1993 Stock Option Plan, incorporated by reference to Exhibit
          10(g) to the 1994 10-K.

 10(d)    1994 Stock Option Plan, incorporated by reference to Appendix
          A to WMS's Definitive Proxy Statement dated December 12, 1994.

 10(e)    Form of Indemnity Agreement authorized to be entered into
          between WMS and each officer and director approved by the
          Board of Directors, incorporated by reference to Exhibit 10(k)
          to the 1994 10-K.

 10(f)    WMS Industries Inc. Treasury Share Bonus Plan adopted April
          19, 1993, incorporated by reference to Exhibit 10(ee) to WMS's
          Annual Report on Form 10-K for the fiscal year ended June 30,
          1993.

 10(g)    Voting Proxy Agreement dated September 21, 1995 among Louis J.
          Nicastro, Neil D. Nicastro, WMS, Sumner M. Redstone and
          National Amusements, Inc., incorporated by reference to
          Exhibit 10(u) to WMS's Annual Report on Form 10-K for the
          fiscal year ended June 30, 1995.

 10(h)    Tax Sharing Agreement dated as of July 1, 1996 among WMS,
          Midway, Atari Games Corporation ("Atari") and others,
          incorporated by reference to Exhibit 10.2 to Midway's
          Registration Statement on Form S-1 (File No. 333-11919) (the
          "Midway S-1").

 10(i)    Patent License Agreement dated as of July 1, 1996 among WMS,
          Williams Electronics Games, Inc. ("WEG") and Midway,
          incorporated by reference to Exhibit 10.4 to the Midway S-1.

 10(j)    Amendment to Article III, Section 3 (Option Adjustments) of
          1982 Employee Stock Option Plan, incorporated by reference to
          Proposal No. 2 to WMS's Definitive Proxy Statement on Schedule
          14A as filed with the Commission on December 11, 1996 (the
          "1996 Proxy Statement").
<PAGE>   68

        10(k)     Amendment to Article III, Section 3 (Option Adjustments)
                  of 1991 Stock Option Plan, incorporated by reference to
                  Proposal No. 2 to the 1996 Proxy Statement.

        10(l)     Amendment to Article III, Section 3 (Option Adjustments) of
                  1993 Stock Option Plan, incorporated by reference to Proposal
                  No. 2 to the 1996 Proxy Statement.

        10(m)     Amendment to Article III, Section 3 (Option Adjustments) of
                  1994 Stock Option Plan, incorporated by reference to Proposal
                  No. 2 to the 1996 Proxy Statement.

        10(n)     1998 Non-Qualified Stock Option Plan, incorporated by
                  reference to Exhibit 4.6(a) to WMS's Registration Statement
                  No. 333-57585 on Form S-8 filed with the Commission on June
                  24, 1998.

        10(o)     Consulting Agreement dated as of April 6, 1998 between WMS and
                  Neil D. Nicastro, incorporated by reference to Exhibit 3 to
                  the Report on Form 8-K filed April 17, 1998 (the "April 1998
                  8-K").

        10(p)     Employment Agreement dated as of April 6, 1998 between WMS and
                  Louis J. Nicastro, incorporated by reference to Exhibit 1 to
                  the April 1998 8-K.

        10(q)     Manufacturing Agreement dated as of April 6, 1998 between WEG
                  and Midway and the Guaranty of the obligations of WEG
                  thereunder by WMS, incorporated by reference to Exhibit 10.23
                  to the Midway Annual Report on Form 10-K for the fiscal year
                  ended June 30, 1998 (the "Midway 1998 10-K").

        10(r)     Spare Parts Sales and Service Agreement dated as of April 6,
                  1998 among WEG, Midway and Atari, incorporated by reference to
                  Exhibit 10.25 to the Midway 1998 10-K.

        10(s)     Information Systems Service Agreement dated as of April 6,
                  1998 between WEG and Midway, incorporated by reference to
                  Exhibit 10.27 to the Midway 1998 10-K.

        10(t)     Confidentiality and Non-Competition Agreement dated as of
                  April 6, 1998 between WMS and Midway, incorporated by
                  reference to Exhibit 10.28 to the Midway 1998 10-K.

        10(u)     Right of First Refusal Agreement dated as of April 6, 1998
                  between WMS and Midway, incorporated by reference to Exhibit
                  10.29 to the Midway 1998 10-K.

        10(v)     Third Parties Agreement dated as of April 6, 1998 between WMS
                  and Midway, incorporated by reference to Exhibit 10.30 to the
                  Midway 1998 10-K.

        10(w)     Temporary Support Services Agreement dated as of April 6, 1998
                  between WMS and Midway, incorporated by reference to Exhibit
                  10.31 to the Midway 1998 10-K.

        10(x)     Tax Separation Agreement dated as of April 6, 1998 between WMS
                  and Midway, incorporated by reference to Exhibit 10.32 to the
                  Midway 1998 10-K.

        10(y)     Tax Indemnification Agreement dated as of April 6, 1998
                  between WMS and Midway, incorporated by reference to Exhibit
                  10.33 to the Midway 1998 10-K.

        10(z)     Worldwide Merchandising Agreement/License Agreement Summary
                  and License Agreement between WMS Gaming Inc., Hasbro, Inc.
                  and Hasbro International, Inc. dated as of the first day of
                  September, 1997, incorporated by reference to Exhibit 99.1 to
                  WMS's Registration Statement No. 83021 on Form S-3 filed with
                  the Commission on July 16, 1999 (the "1999 S-3"). Portions of
                  this exhibit have been omitted under a request for
                  confidential treatment filed separately with the Commission.
<PAGE>   69

        10(aa)    Amendment to License Agreement between WMS Gaming Inc.,
                  Hasbro, Inc. and Hasbro International, Inc. dated 1998,
                  incorporated by reference to Exhibit 99.2 to the 1999 S-3.
                  Portions of this exhibit have been omitted under a request for
                  confidential treatment filed separately with the Commission.

        10(bb)    Employment Agreement between Louis J. Nicastro and WMS dated
                  September 2, 1999, incorporated by reference to Exhibit 10(ii)
                  to WMS's Annual Report on Form 10-K for the fiscal year ended
                  June 30, 1999.

        10(cc)    Employment Agreement between Brian R. Gamache and WMS dated as
                  of March 21, 2000, incorporated by reference to Exhibit 10(a)
                  to WMS's Quarterly Report on Form 10-Q for the fiscal quarter
                  ended March 31, 2000.

        10(dd)    2000 Non-Qualified Stock Option Plan.

        10(ee)    Employment Agreement between Scott D. Schweinfurth and WMS
                  dated May 19, 2000.

        10(ff)    Employment Agreement between Orrin J. Edidin and WMS dated
                  May 8, 2000.

        10(gg)    Employment Agreement between Terence M. Dunleavy and WMS dated
                  June 7, 2000.

        21        Subsidiaries of the Registrant.

        23        Consent of Ernst & Young LLP.

        27        Financial Data Schedule.