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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, 2001

                         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)

    800 SOUTH NORTHPOINT BLVD., WAUKEGAN,                            60085
                   ILLINOIS
  (Address of principal executive offices)                        (Zip Code)
</Table>

       Registrant's telephone number, including area code: (847) 785-3000

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.  [ ]

     The aggregate market value of the 32,080,044 shares of common stock held by
non-affiliates of the registrant on September 21, 2001 was $528,999,926. 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 32,186,807 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), Classic TV Game Show Series(TM) and Puzzle Pays(TM) are
trademarks of our subsidiary WMS Gaming Inc. Our product names mentioned in
"Item 1. Business -- Products" 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), Advance to Boardwalk(TM), Chance(R) and Community
Chest(R) are trademarks of Hasbro, Inc. ("Hasbro"). PICTIONARY(R) is a trademark
of Pictionary Incorporated. JUMBLE(R) is a trademark of Tribune Media Services,
Inc. PAC-MAN(TM) is a trademark of Namco Ltd.(C). HOLLYWOOD SQUARES(R) is a
trademark of King World Productions, Inc. Match Game(R), Password(R) and Beat
the Clock(R) are trademarks of Pearson Television. SURVIVOR(TM) is a trademark
of Survivor Productions LLC, used with permission from CBS Consumer Products.
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, including 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" and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations," among others.

                                     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 mechanical
reel spinning gaming machines and video lottery terminals ("VLTs").

     We conduct our gaming machine business through our subsidiary WMS Gaming
Inc., which markets its products under the WMS Gaming trademark. 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."

     During fiscal 2001, we discontinued the contract manufacturing of
coin-operated video games. During fiscal 2000, we discontinued our former
pinball game business and cabinet manufacturing operations. The financial
position, results of operations and cash flows of these businesses are reported
as discontinued operations in our Consolidated Financial Statements included in
this report.

     Our principal executive offices are located at 800 South Northpoint Blvd.,
Waukegan, Illinois 60085, and our telephone number is (847) 785-3000. Our
website is located at www.wmsgaming.com

                                COMPANY OVERVIEW

     We are a leading designer, manufacturer and marketer of innovative video
and mechanical reel spinning gaming machines and VLTs. We seek to develop gaming
machines that offer high entertainment value and

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generate greater revenues for casinos and other gaming machine operators than
traditional slot machines. 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 United States and in
numerous foreign jurisdictions. We market our gaming machines in two principal
ways. First, we sell our gaming machines and conversion kits to casinos and
other gaming machine operators. Second, we lease our gaming machines to casinos
and other gaming machine operators for lease payment as based upon a percentage
of the net win of the gaming machines or based upon fixed daily fees. The
percentage of net win arrangement allows us to share in the earnings of these
gaming machines, and both types of lease arrangements permit us to generate a
recurring revenue stream. When we refer to "participation games," we mean both
or either of these kinds of lease arrangements. Our revenues increased to $263.8
million in fiscal 2001 from $217.6 million in fiscal 2000 and $126.5 million in
fiscal 1999.

     In 1997, we introduced Reel 'Em In, our first single-themed, multi-coin,
multi-line video gaming machine that incorporates a secondary bonus game.
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, 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 the first of our participation games: a
series of four MONOPOLY themed gaming machines. We are the exclusive licensee of
the widely-recognized MONOPOLY trademark for use on casino-style gaming
machines. These initial MONOPOLY themes 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.
The MONOPOLY themed gaming machines were named the "Best Video Slot" of 2001 by
more than 7,000 readers of Casino Player magazine, and "Best New Slot" of 2000
in last year's annual survey of Casino Player readers. See "Products" below.
Since their introduction, these machines have typically generated average daily
revenue 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 the
MONOPOLY themed gaming machines to casino operators exclusively as a
participation game product.

     In the first quarter of fiscal 2001, we introduced Puzzle Pays, a second
series of participation games, based on popular licensed puzzle game themes. The
first game in the Puzzle Pays series is JUMBLE, based on the popular scrambled
word game appearing in newspapers nationwide. We began to install this game in
casinos in September 2000. We also introduced two additional Puzzle Pays gaming
machines, Bee Bucks, the sequel to JUMBLE, and SCRABBLE in June 2001.

     In fiscal 2002, we expect to launch eight new participation games: two
versions of MONOPOLY, one in Fall 2001 and another in Spring 2002: two versions
of HOLLYWOOD SQUARES, one in Winter 2001 and one in Spring 2002; PICTIONARY, the
fourth theme of our Puzzle Pays game series based on the popular board game, in
Fall 2001; and SURVIVOR, in Winter 2001, based on the popular television show.
This will be our first game commercialized in association with International
Game Technology ("IGT") which will place these games on its wide-area
progressive system. We also expect to introduce PAC-MAN and a new version of
SCRABBLE in Spring 2002. With this increased rate of game introductions and
expected growth in the installed base of participation games, we expect that
participation revenue will represent an even greater percentage of our overall
revenue mix and earnings in the future.

     In March 2000, the State of California approved a constitutional amendment
that permitted Native American gaming within the state. We shipped over 5,000
games to California in fiscal 2001 and are currently the second largest game
supplier in the State.

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                               INDUSTRY OVERVIEW

     Casino operators continuously focus 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 mechanical reel spinning slot machines and the introduction of gaming
machines with secondary bonus rounds:

     - Video gaming machines that simulate a mechanical 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 200 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 one of the fastest growing segments 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 specified 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 game
       designers an opportunity to incorporate additional entertaining content
       into the gaming machines.

We expect continued 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
and net win 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. We expect the
installed base of participation games to continue to increase.

     Another industry trend that has been employed by some manufacturers is a
revenue-sharing model with casino operators called a wide-area progressive
system. A wide-area progressive system enables gaming machines in multiple
locations within a gaming jurisdiction to contribute to and compete for large
system-wide progressive jackpots.

     VLTs include both video and mechanical 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
and international 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
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       and the latest technology. We believe that this experience allows us to
       create gaming machines that offer significantly greater entertainment
       value than traditional mechanical reel spinning gaming machines. Our
       development teams combine the talents of about 190 engineers, designers,
       artists and musicians. We are renovating our Chicago facility to create a
       state-of-the-art design and technology campus for our product development
       staff and expect to complete renovations during the March 2002 quarter.

     - Maximize the potential of our participation games and exclusive licenses
       for use of 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. In Fall
       2000, we introduced the first theme of the Puzzle Pays series, the second
       series of gaming machines that we offer only on a participation basis in
       North America. To date, we have launched a total of three Puzzle Pays
       themes, including the well-known theme brand, SCRABBLE. We expect to
       introduce additional game themes to both the MONOPOLY and Puzzle Pays
       series during fiscal 2002, as well as introduce additional branded
       participation game themes such as HOLLYWOOD SQUARES, SURVIVOR and
       PAC-MAN.

     - Expand our current product line to include participation games on a
       wide-area progressive system: In April 2001, we entered an agreement with
       IGT, the market leader in wide-area progressive systems, for distributing
       a SURVIVOR-brand game on their wide-area progressive platform. We expect
       to launch this product in the March 2002 quarter subject to gaming
       regulatory approvals. In July 2001, we acquired Big Foot Software
       Research and Development, a company with extensive experience in
       developing wide-area progressive system technology. We expect to be able
       to offer our own wide-area progressive system in fiscal 2003, subject to
       regulatory approval.

     - Focus on the multi-coin, multi-line video gaming machine market: We
       believe that the growth of the multi-coin, multi-line video gaming
       machine market will continue because it offers a more interactive
       entertainment experience 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
       introduce a growing number of themes for these machines in the future.

     - Pursue expansion into international markets: We have continued our
       efforts to obtain regulatory licenses to market our games in foreign
       markets, and we are now authorized to conduct business in 10 Canadian
       provinces and 38 other foreign jurisdictions. We began direct sales of
       our gaming machines outside of North America for the first time in fiscal
       2001, through our subsidiary in Barcelona, Spain, and we recently opened
       a sales office in Johannesburg, South Africa to compete in the South
       African casino and newly authorized low-payout machine markets. In
       addition, we have obtained the first approvals for some of our games in
       Australia. The Australian market represents a large international market
       for us. Its gaming market is largely video, which is our area of strength
       in game design.

                                    PRODUCTS

     We have established a line of video and mechanical reel spinning gaming
machines and VLTs incorporating highly-entertaining themes and certain
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
mechanical 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 incorporating
the latest gaming technologies, we supply gaming machines with superior player
appeal.

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     Our gaming machines integrate a secondary bonus round to accompany the
traditional gaming machine to create a game-within-a-game for more exciting and
interactive play. If 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.

     We market our gaming machines in two ways, participation and sale:

PARTICIPATION GAMES

     MONOPOLY themed participation games.  In fiscal 1999, we introduced the
first four MONOPOLY themed gaming machines in Las Vegas under an exclusive
license from Hasbro. These games and the successor games have earned numerous
industry accolades. The MONOPOLY themed gaming machines were named the "Best
Video Slot" of 2001 by more than 7,000 readers of Casino Player magazine, "Best
New Slot" of 2000 by the readers of Casino Player magazine in last year's annual
survey of Casino Player readers, and the "Most Innovative Gaming Product for
1999" at the American Gaming, Lodging and Leisure Summit in 1999. By June 30,
2001, we introduced the eighth MONOPOLY theme, Money Grab, and intend to
introduce two new MONOPOLY games per year to keep the brand fresh and
entertaining. Our game designers use secondary bonus rounds in combination with
the actual elements of the MONOPOLY board game to create the highly entertaining
games. These elements include Mr. MONOPOLY, Chance, Community Chest and the
distinctive game board and tokens, with a big band theme song. Some of these
games are multi-coin, mutli-line video games, and some are mechanical reel
spinning gaming machines.

     Puzzle Pays participation games.  In the first quarter of fiscal 2001, we
introduced a second series of participation games entitled Puzzle Pays. Each
gaming machine in the series is based on a popular licensed puzzle game theme.
The first of these games, JUMBLE, was introduced in casinos in September 2000.
We also introduced two additional Puzzle Pays gaming machines, Bee Bucks, the
sequel to JUMBLE, and SCRABBLE, based on the popular board game, in June 2001.
We expect to introduce our fourth licensed game theme for the Puzzle Pays
series, PICTIONARY, in the December 2001 quarter.

     In fiscal 2002, we expect to launch eight new participation games: two
versions of MONOPOLY, one in Fall 2001 and another in Spring 2002; two versions
of HOLLYWOOD SQUARES, one in Winter 2001 and one in Spring 2002; PICTIONARY, the
fourth theme of our Puzzle Pays game series, based on the popular board game, in
Fall 2001; our first wide-area progressive game, SURVIVOR, in Winter 2001; and
PAC-MAN and a new version of SCRABBLE in Spring 2002. With this increased rate
of game introductions and the expected growth in the installed base of
participation games, we expect that participation revenue will represent an even
greater percentage of our overall revenue mix and earnings in fiscal 2002.

GAMES FOR SALE

     We offer the following product lines for sale:

     - Multi-coin, multi-line video gaming machines.  Our line of multi-coin,
       multi-line, themed gaming machines combines advanced graphics, DCS sound
       effects and music, and secondary bonus rounds. In the primary round, the
       video screen of these gaming machines simulates traditional mechanical
       reel spinning slot machines. Depending on the machine, the player can
       wager up to 200 coins per play.

     - Mechanical reel spinning slot machines.  These mechanical reel spinning
       slot machines feature secondary bonusing through the use of our Dotmation
       feature and also include DCS sound.

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NEW GAMES OFFERED FOR SALE

     During fiscal 2001 and 2000, we released the following new games for sale
in Nevada:

<Table>
<Caption>
    2001                                         2000
    ----                                         ----
    <S>                                          <C>
    Jackpot Party 9-Line                         Winning Bid
    Cash Crop                                    Who Dunnit
    Yukon Gold                                   Reel 'Em In! Cast for Cash
    Money Groove                                 Perfect Game
    Big Tippers 20-Line                          Money to Burn
                                                 Swingin' In the Green
                                                 Wild Streak
                                                 Off the Charts
</Table>

     In fiscal 2002, we expect to launch 12 new base sale games.

     Over the last three years, our sales of gaming machines, primarily video
gaming machines, have grown from 13,582 units in fiscal 1999 to 17,789 units in
fiscal 2000 to 19,070 units in fiscal 2001. Almost all of our sales have been in
the United States and Canada. In fiscal 2001, we began to focus on selling
gaming machines to other parts of the world.

     In June 2001, we announced the first installations of our Jackpot Party
games in Australia. These games are manufactured by Stargames Corporation Pty.
Ltd. using their PC3 hardware platform under our agreement with them. We have
also received approval from the Australian testing authorities for other games,
including the first version of MONOPOLY themed games. We estimate that the
Australian gaming device market totals just under 200,000 gaming machines,
making it the largest gaming market outside of the United States.

     In addition, we have translated our most popular domestic game themes into
Spanish, Portuguese, French and Italian. These games are:

     Reel 'Em In! Cast for Cash
     Winning Bid
     Instant Winner
     Jackpot Party
     Filthy Rich
     Reel 'Em In

     Video Lottery Terminals.  Our VLTs include both video and mechanical 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.

     Parts Sales and Game Conversions.  In addition to our product line of
gaming machines, we also offer sales of replacement parts and game theme
conversions of our gaming machines. We expect that our revenues from these
sources will increase in the future as our installed base of gaming machines
sold has expanded.

                    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. In some cases, we may outsource
certain testing and graphic design functions to independent

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designers under contract to us. Gaming machines must be approved and may be
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 our existing Chicago research and design facilities to
create a state-of-the-art technology campus. We expect to complete renovations
during the March 2002 quarter. As of September 1, 2001, we employed about 190
persons in our design, research and development teams. During the fiscal years
ended June 30, 2001, 2000 and 1999, we spent approximately $17.8 million, $11.7
million and $8.7 million, respectively, on design, research and product
development with respect to gaming machines.

     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. The
licensor typically must inspect and approve any use of the licensed property. 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 non-slot-machine related products.

                              SALES AND MARKETING

     We are authorized to sell or lease our gaming machines to casinos in 157
North American jurisdictions and in 38 other gaming jurisdictions. Generally, we
sell our gaming machines directly, rather than through the use of distributors,
in order to maximize customer service and to enhance profitability. In some
instances, our gaming machines are installed in casinos on a trial basis, and
only after a successful trial period are the machines purchased by the
customers. In addition, we offer our gaming machines under percentage of the net
win leases or fixed daily rental leases. We sell or lease VLTs, depending on the
jurisdictions where they are placed.

     We sell and lease our gaming machines through 24 salespeople in offices in
several United States locations, and seven salespeople in our four international
offices: three in a sales office in Spain, one in a sales office in Australia,
two in a sales office in South Africa, and one in Canada. Our salespeople earn a
salary and commissions based on sales volume and participation placements. Our
gaming machines are marketed through trade shows, promotional videotapes, our
website and advertising in trade journals.

     Export sales and leases of our products were approximately $21.6 million,
or 8.2% of revenues, for fiscal 2001, compared with $16.9 million, or 7.8% of
revenues, for fiscal 2000, and $10.6 million, or 8.4% of revenues, for fiscal
1999. These figures do not include export sales with respect to discontinued
operations. Substantially all foreign sales are made in United States dollars.
Revenue contributions from leases of our products were primarily limited to
North America.

                                  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:

     - earnings performance of the games;

     - engineering innovation and reliability;

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     - mechanical reliability;

     - brand recognition;

     - marketing support; and

     - price or lease terms.

     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, sell or otherwise provide to customers wide-area
progressive, security, 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 mechanical reel spinning gaming machine market, we compete with market
leader IGT, as well as Anchor Gaming, Alliance Gaming, Sigma Game, Atronic
Casino Technology, Mikohn Gaming, ShuffleMaster, Konami and Aristocrat
Technologies. In the VLT market, we compete primarily with IGT, Anchor Gaming,
G-Tech Holdings and Spielo Gaming International.

                                 MANUFACTURING

     In December 2000, we completed the consolidation of our manufacturing,
Chicago regional distributing, warehousing and corporate offices in Waukegan,
Illinois. Combined with new manufacturing processes, this move has allowed us to
achieve greater operating efficiencies. In addition, we have reduced our product
lead times to 4-6 weeks, about half of the industry average.

     Manufacturing commitments are generally based on purchase orders from
customers. Our manufacturing process generally consists of assembling component
parts into a completed gaming machine based on these purchase orders. 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. 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.

     With respect to games subject to participation or lease arrangements, at
June 30, 2001, we had a backlog of 557 games ordered, and at June 30, 2000, we
had a backlog of about 550 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. The popularity of the game can extend over a period
of years.

              PATENT, TRADEMARK, COPYRIGHT AND PRODUCT PROTECTION

     Each gaming machine 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 and license 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."

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                             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 domestic gaming jurisdictions
in 24 states and the Commonwealth of Puerto Rico as well as 124 Native American
tribal jurisdictions, including those tribes located in the State of California.

     In March 2000, the State of California approved a constitutional amendment
that permitted Native American gaming within the state. Approximately 60 Native
American tribes in California have developed or 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 34 Native American tribes in California.

     We have also obtained the required licenses or are otherwise authorized to
manufacture and sell our products in the following additional gaming
jurisdictions: ten Canadian provinces; Argentina; Aruba; Victoria and New South
Wales in Australia; the Bahamas; Catalonia, Spain; Chile; Colombia; the
Dominican Republic; Ecuador; Estonia; France; Greece; Italy; Latvia; Malaysia;
Peru; Philippines; Portugal; Russia; the Slovak Republic; Slovenia; Guateng and
Western Cape provinces in South Africa; Sweden; Uruguay and Venezuela. We also
have pending applications in the provinces of Eastern Cape, Western Cape,
KwaZulu Natal and Free State in South Africa.

     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 or will not be revoked or
suspended.

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 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
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gaming devices and associated equipment. A change in these laws, regulations and
procedures could have an adverse effect on our future Nevada operations.

     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 Gaming
Authorities 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 by the Nevada Gaming
Authorities.

     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 Gaming Authorities 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.

     We are required to submit detailed financial and operating reports to the
Nevada Board. 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 Board.

     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

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<PAGE>   12

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. See also "Item 12. Security Ownership of Certain
Beneficial Owners and Management -- Voting Proxy Agreement".

     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 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
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<PAGE>   13

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. In addition, Nevada law further requires that
persons providing gaming machines to casino customers on a revenue participation
basis pay their "full proportionate share" of the license fees and taxes imposed
on gaming revenues generated by these participation gaming machines.

     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 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.

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RECENT NEVADA LEGISLATION

     In May 2001, legislation approving internet gaming within the State of
Nevada was adopted. After a determination by the Nevada Board of, among other
things, the legality of internet gaming, the Nevada Board will provide
regulatory oversight over internet gaming. The Nevada Board has not promulgated
any regulations relating to internet gaming. We have not taken any steps to
develop any internet gaming product, but we will continue to monitor the
developments of internet gaming in Nevada and elsewhere to evaluate its
potential as a market for expansion.

     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 regulations enable a gaming manufacturer to seek a
determination from the Nevada Board regarding a particular game theme that the
theme, among other things, is not primarily marketed toward minors, and
therefore suitable for approval within the State of Nevada. The purpose of the
amendments is to reduce the attractiveness of gaming devices to minors. WMS
intends, when appropriate, to continue to seek all applicable approvals for its
game themes for use in the State of Nevada.

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 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
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<PAGE>   15

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.

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 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.

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REGULATION IN FOREIGN JURISDICTIONS

     Many 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. Some jurisdictions in which we operate require the licensing of
gaming machines, gaming machine operators and manufacturers. In addition, each
foreign jurisdiction may have specific gaming machine requirements that differ
from our traditional domestic gaming machines with respect to payout features
and hardware and software related to currency and denomination. 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.

                                  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 15, 2001, we employed approximately 800 persons. Approximately
190 of those employees were represented by the International Brotherhood of
Electrical Workers (the "IBEW"). We have a collective bargaining agreement with
the IBEW related to our Waukegan, Illinois manufacturing facility, which expires
on June 30, 2003. We believe that our relations with our employees are
satisfactory.

                                RIGHTS AGREEMENT

     We 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. The Rights Agreement
provides that one preferred stock purchase right attaches to each share of our
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 if a person or group announces a
tender or exchange offer without the consent of our Board of Directors, 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:

THE GAMING INDUSTRY IS SENSITIVE TO DECLINES IN THE PUBLIC ACCEPTANCE OF GAMING.

     The gaming industry can be affected by public opinion of gaming. In the
event that there is a decline in public acceptance of gaming, this may affect
our ability to do business in some markets, either through unfavorable
legislation affecting the introduction of gaming into emerging markets, or
through legislative and regulatory changes in existing gaming markets which may
adversely affect our ability to continue to sell and lease our games in those
jurisdictions. We cannot assure you that public opinion will continue to support
legalized gaming.

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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 is 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 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."

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 can be
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. 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 GAMES.

     Approximately $90.2 million, or 34.2%, of our gaming revenues in fiscal
2001, $67.6 million, or 31.1%, of our gaming revenues in fiscal 2000 and $24.1
million, or 19.0%, of gaming revenues in fiscal 1999 were derived from
participation games, while the rest of our revenues resulted from gaming machine
and parts sales. In addition, in fiscal 2001 our margins on participation games
were 85.8%, while our margins on machine sales were 44.7%. Therefore, our level
of revenue from participation games 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 high revenue and net win
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, in the past, casinos in
certain jurisdictions have sought and may continue to seek legislation
prohibiting or restricting participation and lease 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. We must continually adapt our products to

                                        17
<PAGE>   18

incorporate state-of-the-art technology. We cannot assure you that we will be
able to develop products using these emerging technologies. In addition, our
competitors are constantly introducing new products to the market. We cannot
assure you that we will be able to introduce new products into the market at a
rate which is comparable to our competitors or that we will be able to maintain
our current schedule of planned introductions.

     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 wide-area
progressive, 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.

SOFTWARE ANOMALIES AND MANIPULATION OF OUR MACHINES AND SOFTWARE MAY COST US
MONEY, BURDEN OUR ENGINEERING AND MARKETING RESOURCES, INVOLVE US IN LITIGATION
AND ADVERSELY AFFECT OUR GAMING LICENSES.

     Our success may depend on our ability to avoid and correct anomalies and
fraudulent manipulation of our gaming machines and associated software. Gaming
machines which are susceptible to such anomalies and manipulation are replaced
by the casinos if they do not perform according to expectations, such as paying
false jackpots. In the event of problems with our machines and software,
substantial engineering and marketing resources may be diverted from other
projects to correct those problems and may delay our other projects. Our games
are generally subject to rigorous testing, both internally and by various gaming
jurisdictions, and we have recently begun enlisting the services of an
independent testing lab to further test our games. However, we cannot assure you
that we will be able to build and maintain software-based gaming devices that
are free from such anomalies or manipulations. Despite various levels of
software testing, our software-based gaming machines have in the past and could
in the future be susceptible to software anomalies and manipulation after the
gaming software has been widely distributed.

     In addition, the occurrence of anomalies or fraudulent manipulation of our
machines and gaming software may give rise to claims for lost revenues and
related litigation, and may subject us to investigation or other action by
gaming regulatory authorities including suspension or revocation of a gaming
license. We cannot assure you that, in the event that such anomalies or
manipulations occur in our machines and software, any gaming authorities will
not subject us to disciplinary action. See also "Risk Factors -- Our gaming
machine business is heavily regulated, and we depend on our ability to obtain
and maintain regulatory approvals."

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 AND RETAIN 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 and retain licenses for additional popular
intellectual properties. There is competition for these licenses, and we cannot
assure you

                                        18
<PAGE>   19

that we will be successful in acquiring or retaining additional intellectual
property rights with significant commercial value on acceptable terms. These
intellectual properties are licensed for a fixed term. We cannot assure you that
we will be able to renew the intellectual properties which we currently license.
In the event that we cannot renew these existing licenses, we may be required to
discontinue certain participation games bearing such licensed marks.

     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.

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.

     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 FACE RISKS ASSOCIATED WITH DOING BUSINESS IN INTERNATIONAL MARKETS.

     We are currently seeking to grow through increasing our presence in
international markets. Potential political and economic instability in
international markets may adversely affect our ability to enter into or continue
to do business in these markets. Unstable governments and changes in current
legislation may affect the gaming market with respect to gaming regulation,
taxation, and the legality of gaming in some markets. In addition, fluctuations
in foreign exchange rates, tariffs and other barriers may further impede our
success in international markets. We cannot assure you that these international
markets will remain politically and economically stable enough to continue as a
potential source of sales and profit to us.

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

                                        19
<PAGE>   20

other specialized training and appropriate gaming licenses 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 GAMES INC.

     Seven of our directors, including Louis J. Nicastro, our Chairman of the
Board, are directors of Midway Games Inc. ("Midway"), our former subsidiary.
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 several contractual arrangements in effect between Midway
and WMS. See "Item 13. Certain Relationships and Related Transactions."

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

     Sumner Redstone beneficially owns 8,460,300 shares, or approximately 26.3%,
of our common stock, based upon Amendment 22 to Schedule 13D, dated September
21, 2001, filed by Mr. Redstone with the SEC. 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 over 50% of
WMS' outstanding common stock, 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 Mr. Redstone of a large number of shares could have
an adverse effect on the market price of our common stock.

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 our rights plan, each share of our common stock has an
accompanying right to purchase convertible preferred stock that permits each
holder to purchase shares of our common stock at half price. The rights become
exercisable if any person or entity acquires beneficial ownership of 15% or more
of our common stock without approval of our Board of Directors. We can redeem
the rights at $.01 per right, subject to certain conditions, at any time. The
rights expire in April 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 use of our rights plan may dilute 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 32.2 million shares were issued and outstanding as of September
15, 2001, excluding 77,312 treasury shares. On that date, we also had
outstanding options to purchase an aggregate of approximately 2.7 million shares
of our common stock issuable at an average exercise price of approximately
$14.07 per share. If all of our issued and outstanding stock options were
exercised as of that date, approximately 34.9 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

                                        20
<PAGE>   21

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 $32.64
since April 2000. We may continue to experience volatility in our stock price.

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 September 1, 2001.

<Table>
<Caption>
                                                                                                LEASE
                                      PRINCIPAL             APPROXIMATE        ANNUAL         EXPIRATION
          LOCATION                       USE                SQUARE FEET       RENT ($)         DATE(1)
          --------                    ---------             -----------       --------        ----------
<S>                              <C>                     <C>                  <C>           <C>
800 S. Northpoint Rd.            Principal Office                  236,000      Owned                   --
Waukegan, IL                     & Manufacturing
3401 N. California Avenue        Office/R&D                        129,400      Owned                   --
Chicago, 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(2)
10 Monte Carlo Crescent          Office/Warehouse                   25,661    364,718(3)          02/28/04
Kyalami Business Park
Midrand, 1684
Gauteng, South Africa
Parque Techologico del Valles    Office/Warehouse                   24,143     37,829(4)          12/31/02
08290 Cerdanyola
Barcelona, Spain
350 Commerce Dr.                 Office/Warehouse                   16,500     82,500             09/30/06
Egg Harbor Township, NJ
2033 Swanson Ct.                 Warehouse                          15,000      5,938(5)    month-to-month
Gurnee, IL
1760 N. Corrington Ave.          Office/Warehouse                   13,340     88,044             03/31/06
Kansas City, MO
6620 Escondido Terrace           Warehouse                          13,200     85,409             03/31/02
Suite F
Las Vegas, NV
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
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      7,693(6)          02/05/04
NSW 2214 Australia
</Table>

                                        21
<PAGE>   22

<Table>
<Caption>
                                                                                                LEASE
                                      PRINCIPAL             APPROXIMATE        ANNUAL         EXPIRATION
          LOCATION                       USE                SQUARE FEET       RENT ($)         DATE(1)
          --------                    ---------             -----------       --------        ----------
<S>                              <C>                     <C>                  <C>           <C>
313 1/2 Worth Ave., #B-1         Office                                665     17,995             03/31/02
Palm Beach, FL
318 N. Carson St.                Office/R&D                            445      8,200             11/15/01
Suite 210
Carson City, NV
15723 116th Avenue               Warehouse                             300        N/A(7)    month-to-month
Edmonton, Alberta Canada
600 N. Pine Island Road          Office                  1 office in suite      9,000             12/31/02
Suite 450-405
Plantation, FL
</Table>

-------------------------

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

(2) This property is currently leased in part to Midway Amusement Games, LLC.
    See "Item 13. Certain Relationships and Related Transactions."

(3) 3,082,85 rand. Converted, for your convenience, at an exchange rate of
    .11817 on September 4, 2001.

(4) 7,104,000 pesetas. Converted, for your convenience, at an exchange rate of
    .005325 on September 4, 2001.

(5) Monthly rent.

(6) 14,840 Australian dollars. Converted, for your convenience, at an exchange
    rate of .5184 on September 4, 2001.

(7) We utilize this property rent-free with the permission of the Alberta Gaming
    and Liquor Commission.

     We believe that the facilities listed in the table above are adequate for
our current needs. 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.

     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>   23

                                    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, 2001
  First Quarter.............................................     23.38       14.38
  Second Quarter............................................     23.88       13.44
  Third Quarter.............................................     20.89       15.65
  Fourth Quarter............................................     32.64       16.63
FISCAL YEAR ENDED JUNE 30, 2000
  First Quarter.............................................     16.81       10.88
  Second Quarter............................................     13.56       10.38
  Third Quarter.............................................     16.00        9.75
  Fourth Quarter............................................     15.44        7.75
</Table>

     No cash dividends were declared or paid during fiscal 2001 or 2000. 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, 2001, there were approximately 1,000 holders of record of
our common stock.

                                        23
<PAGE>   24

ITEM 6.  SELECTED FINANCIAL DATA

<Table>
<Caption>
                                                 FISCAL YEAR ENDED JUNE 30,
                               ---------------------------------------------------------------
                                 2001        2000        1999         1998            1997
                               --------    --------    --------    -----------     -----------
                                          (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                            <C>         <C>         <C>         <C>             <C>
SELECTED STATEMENT OF
  OPERATIONS DATA:
Revenues.....................  $263,772    $217,629    $126,524    $    57,281     $    33,890
                               --------    --------    --------    -----------     -----------
Operating income (loss)......    44,239      67,984      10,678        (71,250)        (76,319)
                               --------    --------    --------    -----------     -----------
Income (loss) from continuing
  operations before income
  taxes......................    49,987      71,438      14,203        (66,840)        (74,101)
                               --------    --------    --------    -----------     -----------
Provision (benefit) for
  income taxes...............    18,069      27,016       5,397        (22,891)        (29,123)
                               --------    --------    --------    -----------     -----------
Income (loss) from continuing
  operations.................    31,918(1)   44,422(2)    8,806(3)     (43,949)(4)     (44,978)(5)
Discontinued operations, net
  of applicable income taxes:
     Pinball and cabinet
       segment...............     4,409     (13,539)     (4,332)        (5,103)         (1,819)
     Contract manufacturing
       segment...............        --      (1,077)        779            228              --
     Video games segment
       Income from
       discontinued
       operations -- net.....        --          --          --         26,746          35,804
       Gain on initial public
          offering of
          subsidiary.........        --          --          --             --          47,771
     Hotel and casino
       segment...............        --          --          --             --           3,917
                               --------    --------    --------    -----------     -----------
Net income (loss)............  $ 36,327    $ 29,806    $  5,253    $   (22,078)    $    40,695
                               ========    ========    ========    ===========     ===========
Basic earnings per share of
  common stock:
  Income (loss) from
     continuing operations...  $   1.01(1) $   1.45(2) $   0.30(3) $     (1.66)(4) $     (1.85)(5)
                               --------    --------    --------    -----------     -----------
  Net income (loss)..........  $   1.15    $   0.97    $   0.18    $     (0.84)    $      1.67
                               ========    ========    ========    ===========     ===========
  Basic shares outstanding...    31,557      30,615      29,308         26,446          24,334
                               --------    --------    --------    -----------     -----------
Diluted earnings per share of
  common stock:
  Income (loss) from
     continuing operations...  $   1.00(1) $   1.42(2) $   0.30(3) $     (1.66)(4) $     (1.85)(5)
                               --------    --------    --------    -----------     -----------
  Net income (loss)..........  $   1.13    $   0.95    $   0.18    $     (0.84)    $      1.67
                               --------    --------    --------    -----------     -----------
  Diluted shares
     outstanding.............    32,050      31,322      29,511         26,446          24,334
                               --------    --------    --------    -----------     -----------
</Table>

                                        24
<PAGE>   25

<Table>
<Caption>
                                                       AS OF JUNE 30,
                               ---------------------------------------------------------------
                                 2001        2000        1999         1998            1997
                               --------    --------    --------    -----------     -----------
                                          (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                            <C>         <C>         <C>         <C>             <C>
SELECTED BALANCE SHEET DATA
Total assets.................  $278,482    $239,030    $238,079    $   207,522     $   306,915
                               --------    --------    --------    -----------     -----------
Working capital..............   173,083     146,321     117,369         99,132          86,176
                               --------    --------    --------    -----------     -----------
Long-term debt...............        --          --          --             --          57,500
                               --------    --------    --------    -----------     -----------
Stockholders' equity.........   256,386     205,420     172,079        155,291         196,000
                               --------    --------    --------    -----------     -----------
</Table>

-------------------------

(1) Income from continuing operations for fiscal 2001 includes an after-tax
    charge of $13.0 million, $0.40 per diluted share, related to the executive
    buyout agreement and an after-tax charge of $2.3 million, $0.07 per diluted
    share, for the costs of relocating our manufacturing and executive offices
    to Waukegan, Illinois during the year.

(2) Income from continuing operations for fiscal 2000 includes an after-tax
    reversal of an excess accrual of $9.7 million, $0.31 per diluted share,
    related to patent litigation, and an after-tax charge of $1.2 million, $0.04
    per diluted share, from our 1998 spin-off of Midway Games Inc. related to
    the adjustment of compensatory stock options.

(3) Income from continuing operations for fiscal 1999 includes an after-tax
    charge of $1.9 million, $0.06 per diluted share, from our 1998 spin-off of
    Midway Games Inc. related to the adjustment of compensatory stock options.

(4) Loss from continuing operations for fiscal 1998 includes an after-tax charge
    of $39.9 million, $1.51 per diluted share, from our 1998 spin-off of Midway
    Games Inc. related to the adjustment of compensatory stock options.

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

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

FISCAL 2001 SIGNIFICANT EVENTS AND TRENDS

     In August 2000, we announced the operations of our contract manufacturing
segment were being discontinued. We completed the windup of this segment in the
second quarter of fiscal 2001. Our consolidated financial statements reflect the
contract manufacturing segment as a discontinued operation.

     The California marketplace for gaming machines opened in May 2000. During
fiscal 2001, we sold over 5,000 gaming machines in California. At June 30, 2001,
we had over 400 participation games installed in California.

     In August 2000, we also announced that we would convert our 129,400 square
foot corporate headquarters and manufacturing facility in Chicago to a creative
technology campus where we would conduct all engineering, graphic design and
game development functions. Our corporate headquarters and manufacturing,
Chicago regional distribution and warehousing operations were relocated to our
Waukegan, Illinois facility in the December 2000 fiscal quarter. We recorded
total relocation related charges of $3.7 million before taxes, or $0.07 per
diluted share, during fiscal 2001. We believe the move has reduced our lead
times for product delivery and has begun to improve operating efficiencies
related to the production of our games.

     In September 2000, we introduced JUMBLE, the first game in our new Puzzle
Pays series of participation games that will also include SCRABBLE and
PICTIONARY. We launched our first SCRABBLE participation game in June 2001. We
anticipate the next game in our Puzzle Pays series, PICTIONARY, will be released
in the December 2001 quarter.

                                        25
<PAGE>   26

     In March 2001, we announced a licensing agreement whereby we secured the
exclusive worldwide rights to develop, manufacture and market gaming machines
based on PAC-MAN and MS. PAC-MAN. We anticipate submitting the first PAC-MAN
themed game to regulatory agencies for approval in Fall 2001. We also announced
a licensing agreement whereby we secured the exclusive worldwide rights to
develop, manufacture and market gaming machines based on the television show
HOLLYWOOD SQUARES. We submitted the HOLLYWOOD SQUARES game for regulatory
approval in August 2001.

     In April 2001, we announced an agreement to develop games based on
SURVIVOR, a reality-based television series, to be placed on a wide-area
progressive jackpot system operated by IGT. We will design and market the games,
which will be manufactured by IGT, and we have agreed to split the profits with
them equally. We expect the game will be submitted for regulatory approval in
the March 2002 quarter.

     In June 2001, we announced the first installations of our Jackpot Party
games in Australia. These games are manufactured by Stargames Corporation Pty.
Ltd. using their PC3 hardware platform under our agreement with them. We have
also received approval from the Australian testing authorities for other games,
including the first version of our MONOPOLY themed games. We estimate that the
Australian gaming device market totals just under 200,000 gaming machines,
making it the largest gaming market outside of the United States.

     Our fiscal 2001 results include a nonrecurring pre-tax charge of $20.3
million, or $0.40 per diluted share, related to an executive buyout agreement
with our former Chief Executive Officer, Louis J. Nicastro. This charge is
recorded as part of selling and administrative expense in our financial
statements. Mr. Nicastro remains as our nonexecutive Chairman of the Board of
Directors.

     Recent incidents of terrorism in the United States have caused increased
security measures for domestic airline flights and reduced overall levels of
business and leisure airline travel. The reduced travel will likely have an
adverse effect on the casino and gaming industry. We expect reduced game play in
the near term, particularly in Las Vegas casinos which may negatively impact our
revenues and profitability.

LIQUIDITY AND CAPITAL RESOURCES

     We believe that cash and cash equivalents and short-term investments of
$86.5 million at June 30, 2001, along with our $50.0 million bank revolving line
of credit that extends to May 1, 2002, and cash flow from operations will be
adequate to fund our anticipated level of capital expenditures, cash to be
invested in participation games, and increases in the levels of inventories and
receivables required in the operation of our business.

     Cash provided by continuing operating activities before changes in
operating assets and liabilities was $64.6 million for fiscal 2001, as compared
to cash provided of $31.4 million for fiscal 2000. The increase was due to $6.5
million of increased net income, $4.2 million of greater depreciation and
amortization and $5.3 million of higher tax benefits from the exercise of more
common stock options in the current fiscal year, while the prior year's
activities included a litigation settlement payment of $27.0 million and a
non-cash reversal of excess accruals related to that litigation of $15.6
million, partially offset by deferred income taxes of $11.4 million and a
non-cash loss from discontinued operations of $14.6 million.

     The changes in operating assets and liabilities resulted in $40.6 million
of cash outflow for fiscal 2001, compared with a cash inflow of $3.8 million
during the prior fiscal year. Cash outflow for fiscal 2001 was primarily due to
an increase in inventories and other assets, together with an increase in
current refundable taxes and a decrease in current liabilities due to payments
of liabilities of discontinued operations from the comparable balances at June
30, 2000, partially offset by a smaller increase in accounts receivable. The
increase in inventories is due to the increased overall level of business
including game production to support the anticipated increase in participation
game placements. The increase in other assets reflects increases in deferred tax
assets, non-current notes receivable and advance royalty payments related to
future game development. The cash inflow for fiscal 2000 was primarily due to a
decrease in inventories from the comparable balances at June 30, 1999, and
income taxes refundable due to the litigation settlement. We have not
experienced significant bad debt expense in any of the periods discussed.

                                        26
<PAGE>   27

     Cash used by investing activities was $37.7 million for fiscal 2001,
compared with cash used of $72.7 million for fiscal 2000. Cash used for the
purchase of property, plant and equipment for fiscal 2001 was $8.1 million,
compared with $3.1 million for fiscal 2000. This increase resulted from the
improvements made to our Waukegan, Illinois headquarters and manufacturing
facility and the first phases of our Chicago product development facility
renovation. Cash used for additions to participation games was $18.8 million and
$8.9 million for fiscal 2001 and 2000, respectively. The increase in fiscal 2001
resulted from an increase of 1,901 participation games from June 30, 2000 to
June 30, 2001 compared to 1,241 units from June 30, 1999 to June 30, 2000
coupled with higher component costs for the latest participation games. Net cash
of $10.7 million was used for the purchase of short-term investments for fiscal
2001, compared to $60.8 million in fiscal 2000.

     Cash provided by financing activities, which was from the exercise of
common stock options, was $7.4 million for fiscal 2001 compared with $1.6
million for the prior fiscal year due to a greater number of option exercises.

     For fiscal 2001, the discontinued pinball and cabinet segment provided $2.8
million of cash, and the discontinued contract manufacturing segment used $1.4
million of cash. The cash provided by the pinball and cabinet segment reflects
refundable income taxes due to a tax deduction for the write-off of goodwill
associated with this business. For fiscal 2000, the pinball and cabinet segment
used $5.1 million of cash, and the contract manufacturing segment provided $2.2
million of cash.

RESULTS OF OPERATIONS

  Fiscal 2001 Compared with Fiscal 2000

     Consolidated revenues increased 21.2% to $263.8 million in fiscal 2001 from
$217.6 million in fiscal 2000. Total revenue increased $46.1 million: $23.5
million from increased machine sales and $22.6 million from increased
participation game revenue. We shipped 19,070 video and mechanical reel type
gaming devices in the current fiscal year, resulting in product and parts sales
of $173.6 million versus 17,789 gaming devices shipped and $150.0 million of
product and parts sales in the prior fiscal year due to the continued market
acceptance of new models, the impact of the opening of the California market and
the launch of product sales outside of North America, partially offset by a
decline in new casino openings from the prior fiscal year. In addition, the
average sales price increased from $7,904 in the prior fiscal year to $8,357 in
the current fiscal year primarily due to a price increase implemented in August
2000 and a change in sales mix to higher priced products.

     The increase in participation game revenue was due to an increase in the
installed base of participation games to a total of 5,857 units installed at
June 30, 2001, compared to 3,956 units installed at June 30, 2000. The installed
base increased due to continued growth in MONOPOLY games and the introduction of
our second series of participation games in fiscal 2001 with JUMBLE and SCRABBLE
brand games as the first games in this series. We introduced Money Grab, the
eighth version of the MONOPOLY product, in February 2001. Average net win per
day per machine decreased from $47.32 in fiscal 2000 to $43.76 in the current
fiscal year. This decrease resulted primarily from the higher mix of games in
lower net win jurisdictions in the current fiscal year. The backlog for our
participation games stood at over 550 units as of June 30, 2001.

     Consolidated gross profit in fiscal 2001 rose 28.0% to $155.0 million from
$121.1 million in fiscal 2000. The gross margin percentage increased from 55.6%
in fiscal 2000 to 58.8% in fiscal 2001. The increase in gross margin percentage
resulted from higher gross profit margins on gaming machine sales and the impact
of higher margin participation game revenues being a slightly higher portion of
total revenues. The gross margin on gaming machine sales increased from 41.2% in
fiscal 2000 to 44.7% in fiscal 2001 due to the increase in average sales price
and the mix of products to higher margin products, including higher game
conversion revenues, coupled with realizing benefits from consolidating
manufacturing, warehousing and distribution operations in Waukegan, Illinois in
December 2000. The gross profit margin on participation game revenues decreased
slightly from 87.7% in fiscal 2000 to 85.8% in fiscal 2001 due to higher
replacement part costs on fully depreciated machines still in service and the
lower average net revenue per day per machine.
                                        27
<PAGE>   28

     Research and development expenses increased $6.2 million, or 52.8%, in the
current fiscal year to $17.8 million from $11.7 million in fiscal 2000 as we
continued to invest in people and technologies to develop new games, product
platforms and operating systems. The increase was primarily due to higher
engineering expenditures and increased headcount, and included costs to adapt
our games for distribution to international markets. We anticipate higher
staffing levels will allow us to increase the number of new games we introduce
in the coming year. During fiscal 2001, we introduced five new games for sale
and four new participation games, including SCRABBLE and the latest version of
MONOPOLY, Money Grab.

     Selling and administrative expenses increased 65.7% from $42.7 million in
fiscal 2000 to $70.8 million in the current fiscal year. The fiscal 2001 amount
includes a $20.3 million pre-tax charge for the executive buyout agreement.
Excluding this nonrecurring charge, selling and administrative expenses
increased 18.3%, as we increased our cost structure to support our 21.2% revenue
growth.

     Corporate relocation expenses of $3.7 million, or $0.07 per diluted share,
in the current fiscal year represent costs associated with the relocation and
centralization of our corporate headquarters, manufacturing, Chicago regional
distribution and warehousing facilities to Waukegan, Illinois.

     Depreciation and amortization increased during the current fiscal year to
$18.5 million from $14.3 million in the prior fiscal year due to the increase in
the installed base of participation games. The average installed base was 4,850
units for fiscal 2001, compared to 3,414 units for fiscal 2000. The 28.9%
increase in depreciation and amortization expense reflects the 42.1% increase in
the average installed base of participation games partially offset by a
reduction in depreciation on those participation games originally installed in
fiscal 1999 that have been depreciated to net realizable value.

     Operating income was $44.2 million in the current fiscal year, compared to
$68.0 million in the prior fiscal year. The financial results of the current
fiscal year reflect the pre-tax charge of $20.3 million from the costs
associated with the executive buyout agreement and $3.7 million of costs
associated with our relocation to Waukegan, Illinois, while the financial
results for fiscal 2000 include a $15.6 million gain from reversal of an excess
accrual due to settlement of patent litigation. Excluding these items, operating
income increased 30.2% from $52.4 million in fiscal 2000 to $68.1 million in
fiscal 2001 as revenue and gross margin increases were partially offset by
higher research and development, selling and administrative and depreciation and
amortization expenses.

     The provision for income taxes on continuing operations decreased to $18.1
million in the current fiscal year from $27.0 million in the prior fiscal year.
The decrease was due to lower pre-tax income in the current fiscal year. The
effective tax rate was 36.1% in fiscal 2001, compared to 37.8% in fiscal 2000.
This lower effective rate reflects the beneficial tax treatment of foreign
sourced income and dividend investment income, and higher tax credits in the
current year.

     Income from continuing operations was $31.9 million, or $1.00 per diluted
share, in the current fiscal year, compared to $44.4 million, or $1.42 per
diluted share, in the prior fiscal year. The financial results of the current
fiscal year reflect after-tax charges of $13.0 million, or $0.40 per diluted
share, from the costs associated with the executive buyout agreement and $2.3
million, or $0.07 per diluted share, for costs associated with our relocation to
Waukegan, Illinois, while the financial results for fiscal 2000 include a
one-time after-tax gain of $9.7 million, or $0.31 per diluted share, from the
reversal of the excess accrual related to the settlement of patent litigation.
Excluding these items, income from continuing operations increased 36.2% from
$34.7 million, or $1.11 per diluted share, in fiscal 2000 to $47.2 million, or
$1.47 per diluted share, in fiscal 2001 as revenue and gross margin increases
were partially offset by higher research and development, selling and
administrative and depreciation and amortization expenses.

     Net income, which includes continuing operations and discontinued
operations, was $36.3 million, or $1.13 per diluted share, for the current
fiscal year compared to $29.8 million, or $0.95 per diluted share, for the prior
fiscal year.

                                        28
<PAGE>   29

 Fiscal 2000 Compared with Fiscal 1999

     Consolidated revenues increased to $217.6 million, or 72.0%, in fiscal 2000
from $126.5 million in fiscal 1999. Total revenue increased $91.1 million; $47.6
million from increased machine sales and $43.5 million from increased
participation game revenue. The increase in revenue from machine sales results
primarily from the sale of 17,789 video and mechanical 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. 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 game 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 44.0% in fiscal 1999 to 55.6% in fiscal 2000. The increase in gross margin
resulted from higher average sales prices, a greater percentage of higher margin
participation game revenues included in total revenues in the June 2000 fiscal
year, the impact of higher utilization of our manufacturing facility and lower
material costs.

     Research and development expenses increased during fiscal 2000 to $11.7
million from $8.7 million in fiscal 1999 as we continued to invest in enhancing
our product pipeline and product platform. The increase was 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 versions of the 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 the MONOPOLY participation games.

     Selling and administrative expenses increased 40.6% from $30.4 million in
fiscal 1999 to $42.7 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 increased during fiscal 2000 to $14.3 million
from $5.9 million in fiscal 1999 due to the increase in the installed base of
MONOPOLY machines under lease. The average installed base was 3,414 units for
fiscal 2000, compared to 895 units for fiscal 1999.

     Operating income was $68.0 million in fiscal 2000, compared to $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 due to the
settlement of patent 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 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 $8.8 million, or $0.30 per diluted share, in
fiscal 1999. The financial results of fiscal 2000 reflect a one-time after-tax
gain of $9.7 million, or $0.31 per diluted share, from the reversal of the
excess accrual due to settlement of patent 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, 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 $5.3 million, or $0.18 per diluted
                                        29
<PAGE>   30

share, for fiscal 1999. 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.

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.

                                        30
<PAGE>   31

                                    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 2002 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
                                                                             DEEMED TO BE          OF
                                        POSITION(S) WITH         DIRECTOR    BENEFICIALLY      OUTSTANDING
                                             WMS AND                OF         OWNED AT          COMMON
DIRECTOR (AGE)                        PRINCIPAL OCCUPATION       WMS SINCE   09/15/01(1)        STOCK(2)
--------------                        --------------------       ---------   ------------      -----------
<S>                               <C>                            <C>         <C>               <C>
Louis J. Nicastro (73)..........  Chairman of the Board of         1974       8,464,932(3)        26.3%
                                    Directors
Norman J. Menell (69)...........  Vice Chairman of the Board of    1980          32,947(4)           *
                                    Directors
Brian R. Gamache (42)...........  Chief Executive Officer,         2001         130,000(5)           *
                                    President and Director
William C. Bartholomay (73).....  Director of WMS and President    1981          54,531(4)           *
                                    of Near North National
                                    Group
William E. McKenna (82).........  Director of WMS and General      1981         101,280(6)           *
                                    Partner, MCK Investment
                                    Company
Donna B. More (43)..............  Director of WMS and Attorney,    2000          50,000(7)           *
                                    More Law Group
Neil D. Nicastro (44)...........  Director of WMS and              1986       8,465,314(8)        26.3%
                                  President, Chief Executive
                                    Officer and Chief Operating
                                    Officer of Midway Games
                                    Inc.
Harvey Reich (72)...............  Director of WMS and Attorney     1983           3,421              *
David M. Satz, Jr. (75).........  Director of WMS and Attorney,    1998          38,500(9)           *
                                    Saiber Schlesinger Satz &
                                    Goldstein
Ira S. Sheinfeld (63)...........  Director of WMS and Attorney,    1993         143,930(10)          *
                                    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 32,186,807 shares outstanding on September 15, 2001.

 (3) Includes 8,460,300 shares owned by Sumner M. Redstone and National
     Amusements, Inc. for which the reporting person has shared voting power but
     no dispositive power. For a discussion concerning the shared voting power
     with respect to the 8,460,300 shares referred to above, see "Item 12.
     Security Ownership of Certain Beneficial Owners and Management -- Voting
     Proxy Agreement".

 (4) Includes 25,000 shares underlying stock options.

 (5) Includes 125,000 shares underlying stock options.

 (6) Includes 87,955 shares underlying stock options.

 (7) Includes 50,000 shares underlying stock options.
                                        31
<PAGE>   32

 (8) Includes 8,460,300 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 5,000 shares underlying stock options.
     See "Item 12. Security Ownership of Certain Beneficial Owners and
     Management -- Voting Proxy Agreement" below.

 (9) Includes 37,500 shares underlying stock options.

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

     Louis J. Nicastro has served as our Chairman of the Board since our
incorporation in 1974. He was our Chief Executive Officer from April 1998 until
June 14, 2001 and was also President from April 1998 to April 2000. Mr. Nicastro
also served as our Chief Executive Officer or Co-Chief Executive Officer from
1974 to 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 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.

     Brian R. Gamache served as our President and Chief Operating Officer from
April 2000 until June 14, 2001, when he was appointed Chief Executive Officer
and President and joined our Board of Directors. 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 Resorts &
Casinos Inc. ("WHG") from April 1997 until January 1998. From 1990 until April
1997, 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 WMS's April 1997 spinoff of WHG, Mr. Gamache left WMS to devote
his full time to WHG.

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

     Donna B. More became a director of WMS in May 2000.  She is the principal
partner in the More Law Group, which she founded in June 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 Chairman of the Board, Chief Executive
Officer, President and Chief Operating Officer for more than five years. 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. He is Chairman of our Nominating Committee. 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 and is Chairman of our Stock Option Committee. Mr. Reich
is also a director of Midway.

     David M. Satz, Jr. 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. Mr. Satz has also served as
First Assistant Attorney General for the State of New Jersey and is the former
                                        32
<PAGE>   33

U.S. Attorney for the District of New Jersey. He serves as a Counselor to the
International Association of Gaming Attorneys and had formerly served as its
President and on its Board of Trustees. Mr. Satz was elected a director of WMS
in 1998 and serves as Chairman of both our Compliance and Negotiating
Committees.

     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 2002 Annual Meeting of the Board of Directors and until their
respective successors are duly elected and qualify.

     Brian R. Gamache, The age and principal employment of Mr. Gamache during
the last five years is set forth in Item 10(a) above.

     Scott D. Schweinfurth, 47, joined us in April 2000, assuming the offices of
Executive Vice President, Chief Financial Officer and Treasurer. He is a
certified public accountant and was, from 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 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, 40, joined us in May 1997.  He served as our Vice
President, Secretary and General Counsel from June 1997 until May 2000, when he
became our Executive Vice President, Secretary and General Counsel from May
2000. On September 14, 2001, Mr. Edidin became our Chief Operating Officer,
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 the Association of Gaming Equipment Manufacturers.

     Robert R. Rogowski, 43, joined us in 1992 as Director of Internal Audit,
becoming Vice President of Finance of WMS Gaming in 1996 and our Vice President
of Finance and Controller in April 2000. He is a certified public accountant.
From 1982 to 1991, he served in the finance department at Sara Lee.

     Seamus M. McGill, 50, joined us in August 1998 as the Vice President of
Worldwide Sales of our wholly-owned subsidiary, WMS Gaming Inc. On September 14,
2001, he became the Executive Vice President of Sales and Marketing of WMS
Gaming Inc. He served as Executive Vice President of Mikohn Gaming Corporation
from 1995 until August 1997. Mr. McGill also served as Chief Operating Officer
for Genasys II Inc. from 1993 until 1995 and as Senior Vice President, U.S.
Sales and International Operations for Spectradyne, Inc. from 1989 until 1993.

     (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 and written representations from the reporting persons that no
Form 5 was required, we believe that during fiscal 2001 all filing requirements
applicable to our officers, directors and greater than 10 percent beneficial
owners were complied with, except that Mr. Terence C. Dunleavy, our former Vice
President, Assistant General Counsel and Chief Compliance Officer, filed one
late report concerning two transactions, and Mr. Rogowski filed one late report
concerning one transaction.

ITEM 11.  EXECUTIVE COMPENSATION.

     The Summary Compensation Table below sets forth the compensation earned
during the fiscal years ended June 30, 2001, 2000 and 1999 by each person who
served as Chief Executive Officer and our four next most highly compensated
executive officers whose fiscal 2001 salary and bonus exceeded $100,000.

                                        33
<PAGE>   34

Messrs. Gamache and Schweinfurth joined us in April 2000. 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 in fiscal 2000
and 1999. Compensation that we or Midway paid to Mr. Edidin 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, during fiscal 1999
and 2000, until May 2000, 40% to 70% of his time to Midway.

                           SUMMARY COMPENSATION TABLE

<Table>
<Caption>
                                                                                        LONG TERM
                                                   ANNUAL COMPENSATION             COMPENSATION AWARDS
                                         ---------------------------------------   -------------------
                                                                                       SECURITIES           ALL OTHER
                                                                         OTHER         UNDERLYING         COMPENSATION
NAME AND PRINCIPAL POSITION              YEAR   SALARY($)   BONUS($)      ($)          OPTIONS(#)              ($)
---------------------------              ----   ---------   ---------   --------   -------------------   ---------------
<S>                                      <C>    <C>         <C>         <C>        <C>                   <C>
Louis J. Nicastro......................  2001    649,025    1,023,280        --          500,000           20,000,000(2)
  Chairman of the Board and              2000    562,500    1,139,680        --               --                   --
  Chief Executive Officer(1)             1999    450,000     500,000         --               --                   --
Brian R. Gamache.......................  2001    375,000     520,000     43,737(4)       175,000                   --
  Chief Executive Officer and            2000     86,538     144,932(5)      --          250,000                   --
    President(3)
Scott D. Schweinfurth..................  2001    275,000     218,750     41,538(4)        75,000                   --
  Executive Vice President, Chief        2000     52,661      49,796(5)      --          100,000                   --
  Financial Officer and Treasurer(6)
Orrin J. Edidin........................  2001    250,000     260,000         --           75,000              238,995(7)
  Executive Vice President,              2000    217,305      75,000         --          100,000(8)           147,112(7)
  Chief Operating Officer, Secretary     1999    200,000      75,000         --           25,000(8)           105,748(7)
  and General Counsel
Robert R. Rogowski.....................  2001    160,000      70,000         --           10,000                   --
  Vice President -- Finance and          2000    124,192      48,000         --           30,000               54,502(7)
    Controller
</Table>

-------------------------
 (1) Mr. Nicastro resigned from the office of Chief Executive Officer effective
     on June 14, 2001.

 (2) Represents amounts paid in conjunction with Mr. Nicastro's employee buyout
     agreement. See "Item 11. Executive Compensation -- Employment Contracts."

 (3) Mr. Gamache joined WMS on April 10, 2000 as President and Chief Operating
     Officer. On June 14, 2001, he became President and Chief Executive Officer.

 (4) Represents reimbursement for the payment of taxes related to relocation
     expenses paid during fiscal 2001.

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

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

 (7) Represents cash payments relating to adjustments to WMS stock options due
     to our 1998 spinoff of Midway. The adjustment is based on a valuation of
     our common stock at the average of the high and low sale prices on the NYSE
     on April 3, 1998, the last day of trading prior to the spinoff.

 (8) 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. 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.

                                        34
<PAGE>   35

     The following table sets forth information with respect to options to
purchase common stock granted in fiscal 2001 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.........  500,000(2)         30.75           17.5625        08/24/10    5,525,000   13,995,000
Brian R. Gamache..........  100,000(3)          6.15            17.313        11/15/10    1,089,000    2,759,000
                             75,000(3)          4.61             22.50        05/14/11    1,061,250    2,689,500
Scott D. Schweinfurth.....   75,000(3)          4.61            17.313        11/15/10      816,750    2,069,250
Orrin J. Edidin...........   75,000(3)          4.61            17.313        11/15/10      816,750    2,069,250
Robert R. Rogowski........   10,000(4)           .62           17.5625        08/22/10      110,500      279,900
</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) This option was repurchased by WMS in conjunction with Mr. Nicastro's
    executive buyout agreement on June 14, 2001 for an amount equal to the
    number of option shares multiplied by spread between market price on June
    14, 2001 and the exercise price. See "Item 11. Executive
    Compensation -- Employment Contracts."

(3) This option becomes exercisable for 100% of the option grant upon the first
    anniversary of the date of grant.

(4) 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.

     The following table sets forth certain information about the exercise of
options to purchase our common stock during fiscal 2001 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 6/30/01(#)        AT 6/30/01($)(1)
                                      ACQUIRED ON      VALUE        EXERCISABLE/          EXERCISABLE/
NAME                                  EXERCISE(#)   REALIZED($)    UNEXERCISABLE         UNEXERCISABLE
----                                  -----------   -----------   ----------------   ----------------------
<S>                                   <C>           <C>           <C>      <C>       <C>         <C>
Louis J. Nicastro...................    500,000      5,843,750         --/      --           --/         --
Brian R. Gamache....................     75,000        887,438     25,000/ 325,000      580,813/  5,695,825
Scott D. Schweinfurth...............     25,000        348,523         --/ 150,000           --/  2,917,650
Orrin J. Edidin.....................     65,000      1,093,465         --/ 160,000           --/  3,194,975
Robert R. Rogowski..................     14,019        239,319         --/  38,400           --/    821,553
</Table>

-------------------------

(1) Based on the closing price of our common stock on the NYSE on June 29, 2001,
    which was $32.17.

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 is not also an employee
of WMS or our subsidiaries who serves as the chairman of any committee of our
Board of Directors receives a further fee of $5,000 per year for services in

                                        35
<PAGE>   36

that capacity, and each member of our Audit and Ethics Committee receives an
additional fee of $5,000 per year. David M. Satz, Jr. will receive a fee of
$5,000 per year for serving as the non-employee director of some of our
subsidiaries.

     Five of our 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. In fiscal 2001, no options to purchase our
common stock were granted to non-employee directors.

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

STOCK OPTION PLANS

     We currently have the following seven 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; the 2000 Non-Qualified Stock Option Plan; and the 2000 Stock Option Plan
(collectively, the "Plans"). The Plans permit us to 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 Non-Qualified Plans, or they may be non-qualified
options that do 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 our common stock
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, 2001, no options were outstanding,
and no further options were available for grant. Under the 1991 Plan, 51,218
options were outstanding, and no further options were available for grant. Under
the 1993 Plan, 165,161 options were outstanding, and 1,260 further options were
available for grant. Under the 1994 Plan, 282,099 options were outstanding, and
no further options were available for grant. Under the 1998 Plan, 562,850
options were outstanding, and 129,550 further options were available for grant.
Under the 2000 Non-Qualified Plan, 1,367,264 options were outstanding, and
346,486 further options were available for grant. Under the qualified 2000 Plan,
250,000 options were outstanding, and 750,000 further options were available for
grant. The average exercise price of outstanding options, at September 15, 2001,
was approximately $14.07 per share. Of the 2,678,592 options outstanding on
September 15, 2001, 1,358,833 were held by our officers and directors.

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, except that Mr. Bartholomay 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.

EMPLOYMENT CONTRACTS

     We employ Brian R. Gamache under the terms of an Employment Agreement dated
June 15, 2001. He receives salary at the rate of $550,000 per year, or a greater
amount if determined by the Board of Directors. Under the agreement, Mr. Gamache
is also entitled to a bonus in an amount equal to the lesser of $1 million or
one percent of our pre-tax income. Mr. Gamache may participate in all benefit
plans and perquisites generally available to our senior executives.
Additionally, Mr. Gamache is entitled to receive any special bonuses that may be
determined by the Board of Directors. Under the agreement, on August 9, 2001,
Mr. Gamache was granted options to purchase 175,000 shares of our common stock.
Such options have an

                                        36
<PAGE>   37

exercise price of $19.51 and become exercisable for one-third of the grant on
each anniversary of the date of grant. In addition, beginning June 30, 2002, and
at the end of each fiscal year thereafter during the term of his employment, Mr.
Gamache shall be entitled to receive additional grants of 100,000 options,
subject to the same vesting schedule, if WMS achieves or exceeds diluted
earnings per share of 1.15 times those of the previous fiscal year. The
agreement expires on June 30, 2004, subject to automatic extensions so that the
term of Mr. Gamache's employment shall at no time be less than three years.

     In addition, Mr. Gamache or his estate is entitled to receive death,
retirement and disability benefits. In the event of Mr. Gamache's death, his
designated beneficiaries will continue to receive salary payments for a period
of six months after the date of death. In addition, Mr. Gamache will receive
death and retirement benefits equal to one-half of Mr. Gamache's salary at the
time of death or retirement, but not less than $275,000 per annum. The death or
retirement benefits are payable in installments over the lesser of 10 years or
the number of years Mr. Gamache is employed by WMS, beginning March 21, 2000.
The employment agreement terminates upon Mr. Gamache's death. If Mr. Gamache is
disabled for more than ninety consecutive days or six months in any 12-month
period during the term of the agreement, and Mr. Gamache is not able to resume
his duties within 30 days of notice of disability, Mr. Gamache's employment
terminates, and he is entitled to receive retirement benefits under the
agreement.

     We may terminate the agreement "for cause", which means:

     - conviction of a felony or any other crime involving fraud, larceny or
       dishonesty;

     - failure to follow a reasonable direction of our Board of Directors;

     - commission of any dishonest, willful or grossly negligent act, which may
       adversely affect us or our business relationships; and

     - failure or refusal to provide accurate information to and cooperate with
       any governmental agencies regulating our business.

     The employment agreement may be terminated at the election of Mr. Gamache,
upon the occurrence without his prior written consent of any one or more of the
following events:

     - the material breach by WMS of any material provision of the agreement,
       after Mr. Gamache has provided us with notice thereof and a reasonable
       opportunity to cure such breach;

     - the placement of Mr. Gamache in a position of lesser status, the
       assignment to Mr. Gamache of duties inconsistent with his current
       positions with us or his duties, or the requirement that Mr. Gamache
       report to anyone other than the Board;

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

     - Mr. Gamache is removed from or not re-elected as a member of the Board of
       Directors of WMS; or

     - we move our headquarters to a location other than the present location or
       our 3401 North California Avenue, Chicago, Illinois facility without Mr.
       Gamache's consent so that such headquarters are located more than 40
       miles farther from his current place of residence than our headquarters
       are presently located.

     If any of these events occurs or if we are considered to have wrongfully
terminated Mr. Gamache's employment agreement, then we would be obligated to pay
Mr. Gamache (a) a lump sum payment equal in amount to Mr. Gamache's base salary
through the date of termination, less any payments previously made; (b) the pro
rata bonus which would have been payable during the current year; (c) an amount
equal to three times the sum of one year's base salary and one year's bonus; and
(d) the retirement benefits which would have been payable in the event of
retirement on the date of termination.

     The employment agreement may also be terminated at the election of Mr.
Gamache 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
                                        37
<PAGE>   38

gives us notice of termination within 60 days, then in lieu of any other rights
under the agreement, (a) all of Mr. Gamache's unvested stock options will
immediately vest; (b) we will be required to pay him a lump sum of three times
his base salary and one year's bonus; (c) all of his retirement benefits would
be payable as if he had retired on such date of change of control; and (d) all
health benefits provided to Mr. Gamache under the agreement shall continue for
18 months thereafter. Effective from July 16, 2001, in the event of (a) Mr.
Gamache's death; (b) Mr. Gamache's termination by reason of permanent
disability; (c) any change of control; or (d) any person or entity or group of
affiliated persons or entities who are not the owners of at least 15% of the
outstanding shares of our voting securities on the date of the agreement,
acquiring more than 25% of our outstanding shares, all of Mr. Gamache's
unexpired unvested options immediately vest.

     If payments made to Mr. Gamache 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. Gamache 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 of "excess parachute payments"
is subject to a 20% nondeductible excise tax on these 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 tax deductible by us.

     We employ Scott D. Schweinfurth under the terms of an Employment Agreement,
dated as of May 19, 2000, and amended on June 4, 2001. The employment agreement,
as amended, provides for salary 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 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. 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. 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, and amended on June 4, 2001. The employment agreement, as
amended, provides for salary 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 75% of his base salary, depending on performance criteria. Mr.
Edidin also received a bonus of $125,000 for serving us through October 30,
2000. 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

                                        38
<PAGE>   39

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.

     We employ Robert R. Rogowski under the terms of an Employment Agreement
dated May 1, 2000. The employment agreement provides for salary at the rate of
$160,000 per year, or a greater amount as may be determined by us. Mr. Rogowski
may receive annual discretionary bonuses of up to 50% of his base salary,
depending on performance criteria. Additionally, Mr. Rogowski may participate in
all benefit plans generally available to executive employees. The agreement is
subject to automatic extensions so that the term of Mr. Rogowski's employment
shall at no time be less than one year. We may terminate the agreement,
effective upon the occurrence of any of the following events: (a) Mr. Rogowski's
material failure to perform his obligations under the agreement; (b) Mr.
Rogowski's death or disability for a period of three consecutive months; (c) Mr.
Rogowski's failure to follow our Ethics and Conflicts of Interest Policy, as
amended from time to time; and (d) in the event that Mr. Rogowski shall act in a
manner which is (i) in violation of the criminal laws of the United States or
any state therein, or (ii) likely to result in the loss of one of our gaming
licenses or the inability to become so licensed. The employment agreement may
also be terminated by Mr. Rogowski 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. Rogowski gives us notice of termination within 60 days,
then in lieu of any other rights under the agreement, all of Mr. Rogowski's
unexpired options would immediately vest, and we will be required to pay him the
lesser amount of (i) a lump sum of his base salary; or (ii) the maximum amount
which could be payable to Mr. Rogowski without any portion of such amount being
subject to the excise tax imposed by Section 4999 of the Internal Revenue Code
of 1986, as amended.

     We employ Seamus M. McGill through our wholly-owned subsidiary, WMS Gaming
Inc., under the terms of an Amended and Restated Employment Agreement dated
February 1, 2001. The employment agreement provides for salary at the rate of
$250,000 per year, or a greater amount as may be determined by us. Mr. McGill
may receive annual discretionary bonuses of up to 50% of his base salary,
depending on performance criteria. Additionally, Mr. McGill may participate in
all benefit plans generally available to executive employees. The agreement is
subject to automatic extensions so that the term of Mr. McGill's employment
shall at no time be less than two years. We may terminate the agreement,
effective upon the occurrence of any of the following events: (a) Mr. McGill's
material failure to perform his obligations under the agreement; (b) Mr.
McGill's death or disability for a period of three consecutive months; (c) Mr.
McGill's failure to follow our Ethics and Conflicts of Interest Policy, as
amended from time to time; and (d) in the event that Mr. McGill shall act in a
manner which is (i) in violation of the criminal laws of the United States or
any state therein, or (ii) likely to result in the loss of one of our gaming
licenses or the inability to become so licensed. The employment agreement may
also be terminated by Mr. McGill 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. McGill gives us notice of termination within 60 days,
then in lieu of any other rights under the agreement, all of Mr. McGill's
unexpired options would immediately vest, and we will be required to pay him the
lesser amount of (i) a lump sum of his base salary; or (ii) the maximum amount
which could be payable to Mr. McGill without any portion of such amount being
subject to the excise tax imposed by Section 4999 of the Code.

                                        39
<PAGE>   40

     Our employment agreement with Louis J. Nicastro has terminated under the
terms of a letter agreement dated June 12, 2001 to facilitate our Chief
Executive Officer succession plans. Under this letter agreement, Mr. Nicastro
resigned as our Chief Executive Officer and as an officer and director of all of
our subsidiaries, effective June 14, 2001. Mr. Nicastro will continue to serve
as our nonexecutive Chairman of the Board, entitled to remuneration similar to
other outside directors and will continue to act as voting proxy for Sumner
Redstone and National Amusements, Inc. pursuant to the voting agreement dated
September 21, 1995. Mr. Nicastro has agreed to provide such management
transition assistance as we reasonably request. As full consideration for, and
in lieu of the payments that would otherwise be made to him under the employment
agreement with respect to, base salary, bonus, retirement and death benefits, we
have paid Mr. Nicastro a lump sum of $6.0 million. In addition, as a special
bonus for his extraordinary service, we have paid Mr. Nicastro an additional
$6.7 million. The employment agreement provided that, in the event that WMS
breached the employment agreement, Mr. Nicastro would have the right to require
us to purchase all of his WMS stock options. In settlement of this right, we
have purchased Mr. Nicastro's 500,000 fully-vested options, which had an
exercise price of $17.5625, with a lump sum payment of $7.3 million. All such
payments have been made less withholding of income and other taxes as may be
required by law to be paid or withheld by WMS.

     Under the terms of the letter agreement, Mr. Nicastro's benefits under the
employment agreement, relating to medical, dental and other expenses, will
remain in full force and effect, and we will continue to maintain an office and
secretary in Palm Beach, Florida for Mr. Nicastro's use until at least December
31, 2002. This letter agreement was not entered into in connection with any
contemplated change of control of WMS, and no payments made thereunder should be
deemed "parachute payments" or "excess parachute payments" as defined in section
280G 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
directors and 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 8,460,300 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, 2001 (except
as otherwise footnoted) about persons we know to be beneficial owners of more
than five percent of our common stock, each of our directors, each of the
executive officers named in the Summary Compensation Table who is not also a
director

                                        40
<PAGE>   41

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.

<Table>
<Caption>
                                                                NUMBER OF SHARES
                                                                OF COMMON STOCK      PERCENTAGE OF
                                                                  BENEFICIALLY        OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER                                OWNED(1)        COMMON STOCK(1)
------------------------------------                            ----------------    ---------------
<S>                                                             <C>                 <C>
Sumner M. Redstone and National Amusements, Inc.............       8,460,300(2)          26.3%
  200 Elm Street
  Dedham, MA 02026
FMR Corp....................................................       4,538,455(3)          14.1%
  82 Devonshire St.
  Boston, MA 02109
Merrill Lynch & Co., Inc....................................       4,095,673(4)          12.7%
  250 Vesey Street
  New York, NY 10381
Neil D. Nicastro(5).........................................       8,465,314(6)          26.3%
Louis J. Nicastro(5)........................................       8,464,932(7)          26.3%
Brian R. Gamache(5).........................................         130,000(8)              *
Scott D. Schweinfurth(5)....................................          76,000(9)              *
Orrin J. Edidin(5)..........................................          75,000(9)              *
Robert R. Rogowski(5).......................................           2,500(10)             *
Seamus M. McGill(5)(11).....................................          50,000(12)             *
Directors and executive officers as a group (14 persons)....       9,228,055(13)         28.1%
</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 32,186,807 shares
     outstanding on September 15, 2001.

 (2) Based upon Amendment No. 22, dated September 21, 2001, to Schedule 13D
     filed by Sumner M. Redstone and National Amusements, Inc. On those filings,
     Redstone and National Amusements reported sole dispositive power over
     4,976,400 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. 8 to Schedule 13G filed February 14, 2001, 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
     800,490 of the shares and sole dispositive power over 4,538,455 of the
     shares as a result of Fidelity Management's acting as investment adviser to
     various investment companies holding 3,737,965 of the shares and Fidelity
     Management Trust and Research's holding 575,790 of the shares. FMR Corp.
     also reported that Fidelity Advisors Value Strategies Fund, one of the
     investment companies, was a beneficial owner of 1,930,000 of these shares.
     In addition, Fidelity International reported that it has sole voting and
     investment power over 224,700 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. 2 to Schedule 13G filed February 7, 2001 with the
     SEC by Merrill Lynch & Co., Inc. on behalf of its division, Merrill Lynch
     Investment Managers ("MLIL") and by Merrill

                                        41
<PAGE>   42

     Lynch Special Value Fund, Inc. ("SVF"). MLIL reported shared voting and
     dispositive power over 2,431,473 shares, and SVF reported shared voting and
     dispositive power over 1,664,200 shares.

 (5) This person's address is c/o WMS Industries Inc., 800 S. Northpoint
     Boulevard, Waukegan, Illinois 60085.

 (6) Includes 8,460,300 shares owned by Sumner M. Redstone and National
     Amusements, Inc. for which the reporting person has shared voting power but
     no dispositive power. See note 2 above. Also includes 5,000 shares
     underlying stock options. For a discussion concerning the shared voting
     power over the 8,460,300 shares referred to above, see "Voting Proxy
     Agreement."

 (7) Includes 8,460,300 shares owned by Sumner M. Redstone and National
     Amusements, Inc. for which the reporting person has shared voting power but
     no dispositive power. See note 2 above. For a discussion concerning the
     shared voting power over the 8,460,300 shares referred to above, see
     "Voting Proxy Agreement."

 (8) Includes 125,000 shares underlying stock options.

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

(10) Includes 2,500 shares underlying stock options.

(11) On September 14, 2001, Mr. McGill was appointed the Executive Vice
     President of Sales and Marketing of our wholly-owned subsidiary, WMS Gaming
     Inc.

(12) Represents 50,000 shares underlying stock options.

(13) Includes 683,683 shares underlying stock options. Additionally, includes
     8,460,300 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."

     We have leased to Midway our facility at 2704 W. Roscoe Street, Chicago,
Illinois. Currently, and until such time as the renovation of our technology
campus at 3401 N. California Avenue, Chicago, Illinois is completed in early
calendar 2002, we will be sharing the Roscoe Street facility with Midway. The
term of the lease is five years commencing August 1, 2001, with two 3-year
options for renewal.

     In connection with our spinoff of Midway, we entered into a number of
agreements with Midway, each dated as of April 6, 1998. Under a Settlement and
Temporary Services Agreement, dated as of August 31, 2001, we have amended some
of these agreements. The remaining material agreements between Midway and us
dated as of April 6, 1998, as so amended, are described below:

     Information Systems Service Agreement.  We provide Midway with access to
our AS-400 computer system and related services and computer systems for some 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 these computer
systems. Midway pays us at a fixed rate for monthly services. The term of the
agreement expires December 31, 2001, with an option for a three-month extension.

     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, which expires in
April 2003.

                                        42
<PAGE>   43

     Right of First Refusal Agreement.  We have granted Midway a right of first
refusal with respect to any offer to us to purchase our South parking lot behind
the building located at 3325 North California Avenue, Chicago, Illinois 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.

     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.
In fiscal 2001, WMS paid to Midway an amount equal to demonstrated tax benefits
lost to Midway relating to the exercise or adjustment of WMS options held by
Midway employees. If Midway is able to receive the tax benefits from these
options or if there is a change of control of Midway, Midway will pay to WMS of
some or all of this amount.

     Tax Indemnification Agreement.  This agreement provides for indemnification
if the Midway spinoff fails to qualify under Section 355 of the Code. 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. Midway will
indemnify WMS if any action that it takes causes the spinoff to fail to qualify
under Section 355 of the Code, against any 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 taxes, interest, penalties
and additions to tax resulting from the spinoff, other than any of these
liabilities for which Midway is required to indemnify WMS.

     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. 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.

                                        43
<PAGE>   44

OTHER RELATED PARTY TRANSACTIONS

     Under a consulting agreement with Neil D. Nicastro, Mr. Nicastro renders
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 expires April 6, 2003, 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.

     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 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 retain for legal services during the current fiscal year. Payments by WMS
accounted for greater than 5% of the gross revenues of this law firm during its
last 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 retain for insurance services during
the current fiscal year.

                                        44
<PAGE>   45

                                    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>
<Caption>
EXHIBIT  DESCRIPTION
-------  -----------
<S>      <C>
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").
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.
</Table>

                                        45
<PAGE>   46

<Table>
<Caption>
EXHIBIT  DESCRIPTION
-------  -----------
<S>      <C>
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.
10(p)    Information Systems Service Agreement dated as of April 6,
         1998 between WEG and Midway, incorporated by reference to
         Exhibit 10.27 to the Midway Annual Report on Form 10-K for
         the fiscal year ended June 30, 1998 (the "Midway 1998
         10-K").
10(q)    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(r)    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(s)    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(t)    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(u)    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(v)    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.
10(w)    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(x)    2000 Non-Qualified Stock Option Plan, incorporated by
         reference to Exhibit 10(dd) to WMS' Annual Report on Form
         10-K for the fiscal year ended June 30, 2000 (the "2000
         10-K").
10(y)    Employment Agreement between Scott D. Schweinfurth and WMS
         dated May 19, 2000, incorporated by reference to Exhibit
         10(ee) to the 2000 10-K.
10(z)    Employment Agreement between Orrin J. Edidin and WMS dated
         May 8, 2000, incorporated by reference to Exhibit 10(ff) to
         the 2000 10-K.
10(aa)   Employment Agreement between Robert R. Rogowski and WMS
         dated May 1, 2000, incorporated by reference to Exhibit
         10(hh) to WMS' Quarterly Report on Form 10-Q for the fiscal
         quarter ended September 30, 2000.
10(bb)   2000 Stock Option Plan, incorporated by reference to
         Appendix B to WMS' Proxy Statement for its 2001 Annual
         Meeting filed with the Commission on December 8, 2000.
10(cc)   Amendment 1 to Employment Agreement between Scott D.
         Schweinfurth and WMS dated June 4, 2001.
10(dd)   Amendment 1 to Employment Agreement between Orrin J. Edidin
         and WMS dated June 4, 2001.
10(ee)   Letter of Termination of Employment Agreement between Louis
         J. Nicastro and WMS dated June 14, 2001.
10(ff)   Employment Agreement between Brian R. Gamache and WMS dated
         as of June 15, 2001.
</Table>

                                        46
<PAGE>   47

<Table>
<Caption>
EXHIBIT  DESCRIPTION
-------  -----------
<S>      <C>
10(gg)   Amended and Restated Employment Agreement between Seamus M.
         McGill and WMS dated as of February 1, 2001.
10(hh)   Net Lease between Midway Amusement Games, LLC and Williams
         Electronics Games, Inc. dated August 3, 2001.
10(ii)   Settlement and Temporary Services Agreement dated August 31,
         2001.
10(jj)   Letter Amendment to Tax Separation Agreement dated September
         24, 2001.
21       Subsidiaries of the Registrant.
23       Consent of Ernst & Young LLP.
</Table>

     (b) Reports on Form 8-K.
        We did not file any reports on Form 8-K in the quarter ended June 30,
         2001.

                                        47
<PAGE>   48

                         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, 2001 and June 30,
  2000......................................................     F-3
Consolidated statements of operations for the years ended
  June 30, 2001, 2000 and 1999..............................     F-4
Consolidated statements of changes in stockholders' equity
  for the years ended June 30, 2001, 2000 and 1999..........     F-5
Consolidated statements of cash flows for the years ended
  June 30, 2001, 2000 and 1999..............................     F-6
Notes to consolidated financial statements..................     F-7
Financial statement schedule II -- Valuation and Qualifying
  Accounts for the years ended June 30, 2001, 2000 and
  1999......................................................    F-18
</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>   49

                         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, 2001 and 2000, 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, 2001. 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, 2001 and 2000, and the
consolidated results of their operations and cash flows for each of the three
years in the period ended June 30, 2001, 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 8, 2001

                                       F-2
<PAGE>   50

                              WMS INDUSTRIES INC.

                          CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<Table>
<Caption>
                                                                    JUNE 30,
                                                              --------------------
                                                                2001        2000
                                                              --------    --------
<S>                                                           <C>         <C>
                                      ASSETS
Current assets:
  Cash and cash equivalents.................................  $ 14,963    $ 19,869
  Short-term investments....................................    71,524      60,800
                                                              --------    --------
                                                                86,487      80,669
  Receivables, net of allowances of $3,931 in 2001 and
     $3,592 in 2000.........................................    46,218      45,190
  Notes receivable, current portion.........................    13,857       9,076
  Income tax receivable.....................................    10,431          --
  Inventories:
     Raw materials and work in progress.....................    16,656      10,152
     Finished goods.........................................    16,290      19,121
                                                              --------    --------
                                                                32,946      29,273
  Assets of discontinued operations.........................        --       5,246
  Deferred income taxes.....................................     3,162       9,279
  Other current assets......................................     2,078       1,198
                                                              --------    --------
          Total current assets..............................   195,179     179,931
Gaming machines on participation or lease, net..............    32,409      20,454
Property, plant and equipment, net..........................    31,973      30,465
Other assets................................................    18,921       8,180
                                                              --------    --------
          Total assets......................................  $278,482    $239,030
                                                              ========    ========

                       LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................  $  6,659    $  8,352
  Accrued compensation and related benefits.................     5,753       3,735
  Income taxes payable......................................        --       2,956
  Liabilities of discontinued operations....................        --       8,242
  Other accrued liabilities.................................     9,684      10,325
                                                              --------    --------
          Total current liabilities.........................    22,096      33,610
Stockholders' equity:
  Preferred stock (5,000,000 shares authorized, none
     issued)................................................        --          --
  Common stock (32,236,380 shares issued in 2001 and
     30,920,042 shares issued in 2000)......................    16,118      15,460
  Additional paid-in capital................................   198,276     184,278
  Retained earnings.........................................    42,391       6,064
  Accumulated other comprehensive income -- translation
     adjustment.............................................       (17)         --
  Treasury stock, at cost (77,312 shares in 2001 and
     2000)..................................................      (382)       (382)
                                                              --------    --------
          Total stockholders' equity........................   256,386     205,420
                                                              --------    --------
          Total liabilities and stockholders' equity........  $278,482    $239,030
                                                              ========    ========
</Table>

                See notes to consolidated financial statements.

                                       F-3
<PAGE>   51

                              WMS INDUSTRIES INC.

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

<Table>
<Caption>
                                                                   YEARS ENDED JUNE 30,
                                                             --------------------------------
                                                               2001        2000        1999
                                                             --------    --------    --------
<S>                                                          <C>         <C>         <C>
REVENUES:
  Machine sales..........................................    $173,572    $150,033    $102,463
  Participation and lease................................      90,200      67,596      24,061
                                                             --------    --------    --------
          Total revenues.................................     263,772     217,629     126,524
                                                             --------    --------    --------
COSTS AND EXPENSES:
  Cost of sales..........................................      96,006      88,217      68,316
  Cost of participation and lease revenue................      12,772       8,342       2,547
  Research and development...............................      17,815      11,658       8,665
  Selling and administrative.............................      70,791      42,713      30,377
  Depreciation and amortization..........................      18,496      14,346       5,941
  Corporate relocation...................................       3,653          --          --
  Reversal of excess accrual due to settlement of
     litigation..........................................          --     (15,631)         --
                                                             --------    --------    --------
          Total costs and expenses.......................     219,533     149,645     115,846
                                                             --------    --------    --------
Operating income.........................................      44,239      67,984      10,678
Interest and other income................................       5,748       3,454       3,525
                                                             --------    --------    --------
Income from continuing operations before income taxes....      49,987      71,438      14,203
Provision for income taxes...............................      18,069      27,016       5,397
                                                             --------    --------    --------
Income from continuing operations........................      31,918      44,422       8,806
Discontinued operations, net of applicable income taxes:
  Pinball and cabinet segment
     Loss from discontinued operations...................          --        (469)     (4,332)
     Income (costs) related to discontinuance............       4,409     (13,070)         --
  Contract manufacturing segment
     Income from discontinued operations.................          --         598         779
     Costs related to discontinuance.....................          --      (1,675)         --
                                                             --------    --------    --------
Income (loss) from discontinued operations...............       4,409     (14,616)     (3,553)
                                                             --------    --------    --------
NET INCOME...............................................    $ 36,327    $ 29,806    $  5,253
                                                             ========    ========    ========
Basic per share of common stock:
  Income from continuing operations......................    $   1.01    $   1.45    $   0.30
                                                             --------    --------    --------
  Net income.............................................    $   1.15    $   0.97    $   0.18
                                                             --------    --------    --------
Diluted per share of common stock:
  Income from continuing operations......................    $   1.00    $   1.42    $   0.30
                                                             --------    --------    --------
  Net income.............................................    $   1.13    $   0.95    $   0.18
                                                             --------    --------    --------
Average number of shares outstanding -- basic............      31,557      30,615      29,308
                                                             --------    --------    --------
Average number of shares outstanding -- diluted..........      32,050      31,322      29,511
                                                             --------    --------    --------
</Table>

                See notes to consolidated financial statements.
                                       F-4
<PAGE>   52

                              WMS INDUSTRIES INC.

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

<Table>
<Caption>
                                          ADDITIONAL   RETAINED    CUMULATIVE    TREASURY       TOTAL
                                COMMON     PAID-IN     EARNINGS    TRANSLATION    STOCK,    STOCKHOLDERS'   COMPREHENSIVE
                                 STOCK     CAPITAL     (DEFICIT)   ADJUSTMENT    AT COST       EQUITY          INCOME
                                -------   ----------   ---------   -----------   --------   -------------   -------------
<S>                             <C>       <C>          <C>         <C>           <C>        <C>             <C>
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         $ 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           5,253
                                                                                                               =======
Net income for the year ended
  June 30, 2000...............      --           --      29,806         --           --         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          29,806
                                                                                                               =======
Net income for the year ended
  June 30, 2001...............      --           --      36,327         --           --         36,327          36,327
Issuance of 1,316,338 shares
  of common stock through
  exercise of stock options...     658        6,770          --         --           --          7,428
Tax benefit from common stock
  options.....................      --        7,228          --         --           --          7,228
Foreign currency translation
  adjustment..................      --           --          --        (17)          --            (17)            (17)
                                -------    --------    --------       ----        -----       --------         -------
BALANCE AS OF JUNE 30, 2001...  $16,118    $198,276    $ 42,391       $(17)       $(382)      $256,386         $36,310
                                =======    ========    ========       ====        =====       ========         =======
</Table>

                See notes to consolidated financial statements.
                                       F-5
<PAGE>   53

                              WMS INDUSTRIES INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                                    YEARS ENDED JUNE 30,
                                                               ------------------------------
                                                                2001       2000        1999
                                                               -------    -------    --------
<S>                                                            <C>        <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................    $36,327    $29,806    $  5,253
Adjustments to reconcile net income to net cash provided by
  operating activities:
  Discontinued operations:
     Loss from pinball and cabinet segment.................         --        469       4,332
     Income from contract manufacturing segment............         --       (598)       (779)
     (Income) costs related to discontinuance..............     (4,409)    14,745          --
  Depreciation and amortization............................     18,496     14,346       5,941
  Provision for bad debts..................................        815      1,943       2,979
  Non-cash loss on asset disposals.........................      1,206         --          --
  Non-cash loss on corporate relocation....................      1,971         --          --
  Reversal of excess accrual due to settlement of
     litigation............................................         --    (15,631)         --
  Payment in settlement of litigation......................         --    (27,000)         --
  Deferred income taxes....................................      2,974     11,376         147
  Tax benefit from exercise of common stock options........      7,228      1,956       3,678
  Increase (decrease) resulting from changes
     in operating assets and liabilities:
     Receivables...........................................     (6,623)   (18,529)    (14,011)
     Income taxes..........................................    (13,253)    10,422       6,857
     Inventories...........................................    (11,804)     4,022      (5,375)
     Other current assets..................................       (880)      (563)       (207)
     Other assets..........................................     (7,600)      (808)      2,854
     Accounts payable and accruals.........................       (449)     9,250       9,826
                                                               -------    -------    --------
Net cash provided by operating activities..................     23,999     35,206      21,495
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment..................     (8,124)    (3,079)     (9,140)
Additions to gaming machines on participation or lease.....    (18,844)    (8,860)    (20,201)
Net change in short-term investments.......................    (10,724)   (60,800)     26,000
                                                               -------    -------    --------
Net cash used by investing activities......................    (37,692)   (72,739)     (3,341)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash received on exercise of stock options.................      7,428      1,579       7,857
CASH FLOWS FROM DISCONTINUED OPERATIONS
Pinball and cabinet segment................................      2,766     (5,073)     (5,904)
Contract manufacturing segment.............................     (1,390)     2,227       1,619
                                                               -------    -------    --------
Net cash provided (used) by discontinued operations........      1,376     (2,846)     (4,285)
EFFECT OF EXCHANGE RATES ON CASH...........................        (17)        --          --
Increase (decrease) in cash and cash equivalents...........     (4,906)   (38,800)     21,726
Cash and cash equivalents at beginning of year.............     19,869     58,669      36,943
                                                               -------    -------    --------
Cash and cash equivalents at end of year...................    $14,963    $19,869    $ 58,669
                                                               =======    =======    ========
</Table>

                See notes to consolidated financial statements.
                                       F-6
<PAGE>   54

                              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 mechanical 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 October 25, 1999, WMS announced the closing of its pinball and cabinet
segment and on August 10, 2000, WMS announced the discontinuance of its contract
manufacturing segment with operations ceasing on 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
generally 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 product and the
risk and rewards of ownership transfer to the customer. Participation and lease
revenue under operating type lease agreements are recognized when earned.
Participation agreements are based on a pre-determined percentage of the daily
net win of each machine. Lease agreements specify a fixed daily rental fee.

 Advertising Expense

     The cost of advertising is charged to earnings as incurred and for fiscal
2001, 2000 and 1999 was $824,000, $614,000 and $1,011,000, respectively.

                                       F-7
<PAGE>   55
                              WMS INDUSTRIES INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

 Research and Development

     Research and development costs are expensed as incurred.

 Foreign Currency Translation

     The local currency is the functional currency (primary currency in which
business is conducted) for the Company's operations in Spain, Australia and
South Africa. Adjustments resulting from translating foreign functional currency
assets and liabilities into U.S. dollars are recorded in a separate component of
stockholders' equity. Gains or losses resulting from transactions in other than
the functional currency are reflected in net income.

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

<Table>
<Caption>
                                                              YEAR ENDED JUNE 30, 2001
                                                           -------------------------------
                                                                                PER-SHARE
                                                            INCOME    SHARES      AMOUNT
                                                           --------   -------   ----------
                                                           (IN THOUSANDS, EXCEPT PER SHARE
                                                                      AMOUNTS)
<S>                                                        <C>        <C>       <C>
Basic EPS
Income available to common stockholders.................   $31,918    31,557      $1.01
Effect of Dilutive Securities -- Options................        --       493       0.01
                                                           -------    ------      -----
Diluted EPS
Income available to common stockholders.................   $31,918    32,050      $1.00
                                                           =======    ======      =====
</Table>

<Table>
<Caption>
                                                              YEAR ENDED JUNE 30, 2000
                                                           -------------------------------
                                                                                PER-SHARE
                                                            INCOME    SHARES      AMOUNT
                                                           --------   -------   ----------
                                                           (IN THOUSANDS, EXCEPT PER SHARE
                                                                      AMOUNTS)
<S>                                                        <C>        <C>       <C>
Basic EPS
Income available to common stockholders.................   $44,422    30,615      $1.45
Effect of Dilutive Securities -- Options................        --       707       0.03
                                                           -------    ------      -----
Diluted EPS
Income available to common stockholders.................   $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
Income available to common stockholders.................   $ 8,806    29,308      $0.30
Effect of Dilutive Securities -- Options................        --       203       0.00
                                                           -------    ------      -----
Diluted EPS
Income available to common stockholders.................   $ 8,806    29,511      $0.30
                                                           =======    ======      =====
</Table>

     Options to purchase 290,000 shares of common stock at a weighted average
price of $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

                                       F-8
<PAGE>   56
                              WMS INDUSTRIES INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

market price of the common shares for the quarter. The options, which expire on
June 30, 2010, were still outstanding as of June 30, 2000.

     Options to purchase 45,000 shares of common stock at a weighted average
price of $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 on June
30, 2009, were still outstanding as of June 30, 1999.

 Accounting Policy Change

     In July 2000, the Emerging Issues Task Force issued EITF Issue 00-10,
"Accounting for Shipping and Handling Fees and Costs". The Company adopted the
provisions of Issue 00-10 for the year ended June 30, 2001 and reclassified the
prior years' presentation accordingly. This Issue required that the costs the
Company bills to its customers for shipping and handling in a sale transaction
be classified as revenue. In addition, all shipping and handling costs incurred
by the Company are to be recorded as cost of goods sold. Prior to the adoption
of EITF 00-10, the Company netted shipping and handling billings and costs and
recorded them in cost of sales. There was no effect on the Company's net income
as a result of the adoption of this pronouncement.

NOTE 3: DISCONTINUED OPERATIONS

     As discussed in Note 1, on October 25, 1999, WMS announced the closing of
its pinball and cabinet segment and on August 10, 2000, WMS announced the
discontinuance of its contract manufacturing segment with operations ceasing
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.

     In fiscal 2000, the Company recorded a $21.3 million pre-tax loss for the
closing of the pinball and cabinet 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 of
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.

     In fiscal 2001, WMS recorded an after-tax gain of $1.3 million, which
reflects the final adjustments to the Company's fiscal 2000 estimated loss on
the disposal and the related tax expense. In addition, the Company recorded a
tax benefit of $3.1 million related to the write-off for tax purposes of $8.6
million of goodwill associated with the original acquisition of the pinball
business in 1969.

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

<Table>
<Caption>
                                                                 2000       1999
                                                                -------    -------
                                                                  (IN THOUSANDS)
<S>                                                             <C>        <C>
Revenues....................................................    $25,499    $46,109
Costs and expenses..........................................     26,255     53,097
                                                                -------    -------
Loss before tax provision...................................       (756)    (6,988)
Benefit for income taxes....................................       (287)    (2,656)
                                                                -------    -------
Net loss....................................................    $  (469)   $(4,332)
                                                                =======    =======
</Table>

     In fiscal 2000, the Company recorded a $2.8 million pre-tax loss for the
closing of its contract manufacturing business, including cash expenses of $1.2
million, for severance pay and shut down expenses.

                                       F-9
<PAGE>   57
                              WMS INDUSTRIES INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

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

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

     At June 30, net property, plant and equipment were:

<Table>
<Caption>
                                                                 2001        2000
                                                               --------    --------
                                                                  (IN THOUSANDS)
<S>                                                            <C>         <C>
Land.......................................................    $  2,985    $  2,985
Buildings and improvements.................................      25,116      25,926
Machinery and equipment....................................      16,147      18,426
Furniture and fixtures.....................................       4,483       2,548
                                                               --------    --------
                                                                 48,731      49,885
Less accumulated depreciation..............................     (16,758)    (19,420)
                                                               --------    --------
Net property, plant and equipment..........................    $ 31,973    $ 30,465
                                                               ========    ========
</Table>

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

<Table>
<Caption>
                                                                 2001       2000
                                                                -------    -------
                                                                  (IN THOUSANDS)
<S>                                                             <C>        <C>
Gaming machines.............................................    $64,967    $39,371
Less accumulated depreciation...............................    (32,558)   (18,917)
                                                                -------    -------
Net gaming machines on participation or lease...............    $32,409    $20,454
                                                                =======    =======
</Table>

     The Company reclassified $8.1 million and $3.6 million of inventory to
gaming machines on participation or lease for the years ended June 30, 2001 and
2000, respectively.

                                       F-10
<PAGE>   58
                              WMS INDUSTRIES INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5: OTHER ASSETS

     At June 30, other assets were:

<Table>
<Caption>
                                                               2001      2000
                                                              -------   ------
                                                               (IN THOUSANDS)
<S>                                                           <C>       <C>
Deferred tax asset -- non-current...........................  $ 4,861   $1,718
Notes receivable............................................    5,637    1,770
Other.......................................................    8,423    4,692
                                                              -------   ------
          Total other assets................................  $18,921   $8,180
                                                              =======   ======
</Table>

NOTE 6: OTHER ACCRUED LIABILITIES

     At June 30, other accrued liabilities were:

<Table>
<Caption>
                                                               2001     2000
                                                              ------   -------
                                                               (IN THOUSANDS)
<S>                                                           <C>      <C>
Accrued property taxes......................................  $1,034   $ 1,024
Royalties payable...........................................   2,534     1,931
Sales taxes payable.........................................   1,652     1,195
Liability under tax sharing agreement.......................      --     2,800
Other accrued liabilities...................................   4,464     3,375
                                                              ------   -------
          Total other accrued liabilities...................  $9,684   $10,325
                                                              ======   =======
</Table>

NOTE 7: INCOME TAXES

     Significant components of the provision (benefit) for income taxes for the
years ended June 30, 2001, 2000 and 1999 were:

<Table>
<Caption>
                                                            2001      2000      1999
                                                           -------   -------   ------
                                                                 (IN THOUSANDS)
<S>                                                        <C>       <C>       <C>
Current
  Federal................................................  $11,064   $11,828   $1,490
  State..................................................    2,570     1,856       82
  Foreign................................................      161        --       --
                                                           -------   -------   ------
Total current............................................   13,795    13,684    1,572
                                                           -------   -------   ------
Deferred
  Federal................................................   (2,721)   10,478     (356)
  State..................................................     (233)      898      (34)
  Foreign................................................       --        --       --
  Change in state allocations............................       --        --      537
                                                           -------   -------   ------
Total deferred...........................................   (2,954)   11,376      147
Provision for tax benefit resulting from stock options...    7,228     1,956    3,678
                                                           -------   -------   ------
Provision for income taxes on continuing operations......   18,069    27,016    5,397
                                                           -------   -------   ------
Benefit for income taxes on discontinued operations......   (1,807)   (9,246)  (2,178)
                                                           -------   -------   ------
Income tax provision, net................................  $16,262   $17,770   $3,219
                                                           =======   =======   ======
</Table>

                                       F-11
<PAGE>   59
                              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>
                                                                 2001      2000
                                                                ------    -------
                                                                 (IN THOUSANDS)
<S>                                                             <C>       <C>
Deferred tax assets resulting from:
  Inventory valuation.......................................    $1,265    $ 1,702
  Receivables valuation.....................................     1,553      1,512
  Book over tax depreciation................................     4,861      2,092
  Discontinued operations...................................        --      5,517
  Accrued items not currently deductible....................       619        303
  Other.....................................................        57        476
                                                                ------    -------
          Total deferred tax assets.........................    $8,355    $11,602
                                                                ------    -------
Deferred tax liabilities resulting from:
  Federal tax benefit of deferred state taxes...............    $  255    $   605
  Other.....................................................        77         --
                                                                ------    -------
          Total deferred tax liabilities....................       332        605
                                                                ------    -------
Net deferred tax assets.....................................    $8,023    $10,997
                                                                ======    =======
</Table>

     The provision for income taxes on continuing operations differs from the
amount computed using the statutory federal income tax rate for the years ended
June 30, 2001, 2000 and 1999 as follows:

<Table>
<Caption>
                                                                2001    2000    1999
                                                                ----    ----    ----
<S>                                                             <C>     <C>     <C>
Statutory federal income tax rate...........................    35.0%   35.0%   35.0%
State income taxes, net of federal benefit..................     2.9     2.9     8.7
Dividend received deduction on investment income............    (1.3)   (0.4)   (5.1)
Foreign sales corporation tax benefit.......................    (1.0)     --      --
Other, net..................................................     0.5    (0.3)   (0.6)
                                                                ----    ----    ----
                                                                36.1%   37.8%   38.0%
                                                                ====    ====    ====
</Table>

     Taxes paid in the years ended June 30, 2001, 2000 and 1999 were $20,316,000
and $5,900,000 and $31,000, respectively. Refunds received in the years ended
June 30, 2001, 2000 and 1999 were $1,031,000 and $2,080,000, and $4,642,000,
respectively.

NOTE 8: LINE OF CREDIT

     The Company has an unused line of credit for $50,000,000 under a revolving
credit agreement for a one-year term to May 1, 2002 which contains usual credit
terms for a bank line. No borrowing occurred on the line in the years ended June
30, 2001 and 2000.

NOTE 9: 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, 2001, 3,933,627 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

                                       F-12
<PAGE>   60
                              WMS INDUSTRIES INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

     On April 6, 1998, 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
2011. 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 our spin-off of Midway Games Inc. in 1998, 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. Expense related to the adjustment of stock options that were not vested as
of June 30, 1998 was recorded and paid consistent with the options' vesting
schedule. During fiscal 2001, 2000 and 1999, $196,000, $1,962,000 and $3,037,000
of such expense was recorded, respectively. As of June 30, 2001, all obligations
under this agreement had been paid.

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

     A summary of the status of the Company's stock option plans for the three
years ended June 30, 2001 was as follows:

<Table>
<Caption>
                                                                                WEIGHTED
                                                               SHARES           AVERAGE
                                                           (IN THOUSANDS)    EXERCISE PRICE
                                                           --------------    --------------
<S>                                                        <C>               <C>
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
Granted................................................         1,626             18.40
Exercised..............................................        (1,316)             5.69
Forfeited..............................................          (667)            15.95
                                                               ------
Outstanding at June 30, 2001...........................         2,323             13.03
                                                               ======
</Table>

                                       F-13
<PAGE>   61
                              WMS INDUSTRIES INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following tables summarize information about stock options outstanding
at June 30, 2001:

<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.........         245             3.1               $3.40             217            $3.35
  4.32 -   5.25.........          88             6.9                4.49              24             4.40
  7.13 -  10.50.........         672             8.5                8.84              45             9.38
 10.75 -  15.00.........         260             8.6               12.22             190            12.19
 17.31 -  22.88.........       1,058             9.4               18.83              --               --
                               -----                                                 ---
  2.51 -  22.88.........       2,323             8.3               13.03             476             7.51
</Table>

     At June 30, 2001, 1,611,000 shares were available for future grants under
the plans. At June 30, 2000, 1,386,000 options with a weighted average exercise
price of $5.38 per share were exercisable. At June 30, 1999, 1,566,000 options
with a weighted average exercise price of $4.03 per share were exercisable.

     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, 2001 or 2000.

     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 and net income per share adjusted for the pro forma expense
provisions of SFAS No. 123 for the years ended June 30, 2001, 2000 and 1999
were:

<Table>
<Caption>
                                                           2001        2000       1999
                                                         --------    --------    -------
                                                         (IN THOUSANDS, EXCEPT PER SHARE
                                                                    AMOUNTS)
<S>                                                      <C>         <C>         <C>
Pro forma net income.................................    $33,230     $28,646     $4,784
Pro forma net income per share:
  Basic..............................................    $  1.05     $  0.94     $ 0.16
  Diluted............................................    $  1.04     $  0.91     $ 0.16
</Table>

     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 2001, 2000 and 1999: dividend yield 0% for all three years; expected
volatility of .60 in fiscal 2001, .75 in fiscal 2000 and .80 for fiscal 1999;
risk free interest rates of 5.00% in 2001, 6.00% in 2000 and 5.95% in 1999; and
expected life of the options of 6 years for fiscal 2001, 2000 and 1999. The
weighted average pro forma fair value, using the Black-Scholes assumptions noted
above, of the options granted during fiscal 2001, 2000 and 1999 was $11.25,
$6.75 and $7.22, respectively.

NOTE 10: 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.

                                       F-14
<PAGE>   62
                              WMS INDUSTRIES INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     In fiscal year 2000, one domestic customer accounted for approximately
10.3% of consolidated sales. No customers accounted for more than 10% in fiscal
years 2001 and 1999.

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

NOTE 11: 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, 2001 as follows:

<Table>
<Caption>
                                                              (IN THOUSANDS)
                                                              --------------
<S>                                                           <C>
2002........................................................      $  986
2003........................................................         767
2004........................................................         708
2005........................................................         667
2006........................................................         256
Thereafter..................................................          23
                                                                  ------
                                                                  $3,407
                                                                  ======
</Table>

     Rent expense for fiscal 2001, 2000 and 1999 was $1,730,000, $1,340,000 and
$1,332,000, respectively.

     The Company has commitments for minimum royalty payments related to
licensed brand names and other intellectual property that aggregate $8.7 million
at June 30, 2001 and are payable over five years.

NOTE 12: RETIREMENT PLANS

     The Company sponsors 401(k) defined contribution plans within the United
States. The plans cover full time employees and provide for Company
contributions of up to 3 percent of covered employees' compensation as defined
in the plans. The Company's expense for the defined contribution plans totaled
$385,000, $437,000 and $303,000 in fiscal years 2001, 2000 and 1999,
respectively.

                                       F-15
<PAGE>   63
                              WMS INDUSTRIES INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 13: QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

     Summarized quarterly financial information for fiscal 2001 and 2000 is as
follows, and has been restated to reflect discontinued operations of the pinball
and cabinet segment and the contract manufacturing segment:

<Table>
<Caption>
                                                 SEPT. 30    DEC. 31    MAR. 31    JUNE 30
                                                   2000        2000       2001       2001
                                                 ---------   --------   --------   --------
                                                  (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                              <C>         <C>        <C>        <C>
FISCAL 2001 QUARTERS
Revenues.......................................   $59,842    $67,408    $70,748    $65,774
Gross profit...................................    34,183     38,226     41,581     41,004
Net income.....................................     9,463     11,033     12,671      3,160
Per share of common stock:
Basic:
  Net income...................................   $  0.30    $  0.35    $  0.40    $  0.10
                                                  -------    -------    -------    -------
  Shares used..................................    31,087     31,601     31,646     31,898
                                                  -------    -------    -------    -------
Diluted:
  Net income...................................   $  0.30    $  0.34    $  0.39    $  0.10
                                                  -------    -------    -------    -------
  Shares used..................................    31,766     32,324     32,275     32,586
                                                  -------    -------    -------    -------
</Table>

     The September 30, 2000, December 31, 2000, March 31, 2001 and June 30, 2001
quarters include an after-tax charge of $0.3 million, $0.01 per diluted share,
$1.6 million, $0.04 per diluted share, $0.2 million, $0.01 per diluted share and
$0.2 million, $0.01 per diluted share, respectively, for the relocation of
manufacturing operations and corporate headquarters during the fiscal year. The
December 31, 2000 and June 30, 2001 quarters include after-tax earnings of $1.6
million, $0.05 per diluted share, and $2.8 million, $0.09 per diluted share,
respectively, for the final adjustments related to the discontinued pinball and
cabinet business. The June 30, 2001 quarter includes an after-tax charge of
$13.0 million, $0.40 per diluted share, for an executive buyout agreement.

<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......................................    $48,302    $52,025    $49,331    $67,971
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 $0.6 million, $0.02 per diluted share, $0.5 million, $0.02
per diluted share and $0.1 million, nil per diluted share, respectively, for the
spin-off related adjustment to WMS outstanding common stock options vesting

                                       F-16
<PAGE>   64
                              WMS INDUSTRIES INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

during each quarter. The December 31, 1999 and June 30, 2000 quarters include an
after-tax reversal of an excess accrual of $8.2 million, $0.26 per diluted
share, and $1.5 million, $0.05 per diluted share, related to the settlement of
patent litigation. The September 30, 1999 quarter includes an after-tax charge
of $13.6 million, $0.44 per diluted share, for the discontinuance of the pinball
and cabinet business. The June 30, 2000 quarter includes an after-tax charge of
$1.7 million, $0.05 per diluted share, for the discontinuance of the contract
manufacturing segment. The September 30, 1999, December 31, 1999, March 31, 2000
and June 30, 2000 quarters include after-tax earnings of $0.1 million, nil per
diluted share, $0.1 million, nil per diluted share, $0.2 million, $0.01 per
diluted share, and $0.1 million, nil per diluted share, respectively, for the
discontinued contract manufacturing segment.

                                       F-17
<PAGE>   65

                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
                    YEARS ENDED JUNE 30, 2001, 2000 AND 1999

<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)
  2001..........................  $3,592,000   $   815,000                $  476,000    $3,931,000
  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
Reserves for asset write-downs
  related to discontinued
  operations:
  2001..........................  $9,530,000   $        --   $       --   $9,530,000    $       --
  2000..........................  $       --   $12,794,000   $       --   $3,264,000    $9,530,000
  1999..........................  $       --   $        --   $       --   $       --    $       --
</Table>

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

                                       F-18
<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
26th day of September, 2001.

                                          WMS INDUSTRIES INC.

                                          By:     /s/ BRIAN R. GAMACHE
                                            ------------------------------------
                                                     Brian R. Gamache
                                                    President & 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                                 POSITIONS                     DATE
                   ---------                                 ---------                     ----
<C>                                               <S>                               <C>
             /s/ LOUIS J. NICASTRO                Chairman of the Board             September 26, 2001
------------------------------------------------
               Louis J. Nicastro

              /s/ BRIAN R. GAMACHE                President, Chief Executive        September 26, 2001
------------------------------------------------    Officer and Director
                Brian R. Gamache                    (Principal Executive Officer)

           /s/ SCOTT D. SCHWEINFURTH              Executive Vice President, Chief   September 26, 2001
------------------------------------------------    Financial Officer and
             Scott D. Schweinfurth                  Treasurer (Principal Financial
                                                    and Principal Accounting
                                                    Officer)

              /s/ NORMAN J. MENELL                Vice Chairman of the Board of     September 26, 2001
------------------------------------------------    Directors
                Norman J. Menell

           /s/ WILLIAM C. BARTHOLOMAY             Director                          September 26, 2001
------------------------------------------------
             William C. Bartholomay

             /s/ WILLIAM E. MCKENNA               Director                          September 26, 2001
------------------------------------------------
               William E. McKenna

               /s/ DONNA B. MORE                  Director                          September 26, 2001
------------------------------------------------
                 Donna B. More

              /s/ NEIL D. NICASTRO                Director                          September 26, 2001
------------------------------------------------
                Neil D. Nicastro

                /s/ HARVEY REICH                  Director                          September 26, 2001
------------------------------------------------
                  Harvey Reich

             /s/ DAVID M. SATZ, JR.               Director                          September 26, 2001
------------------------------------------------
               David M. Satz, Jr.

              /s/ IRA S. SHEINFELD                Director                          September 26, 2001
------------------------------------------------
                Ira S. Sheinfeld
</Table>
<PAGE>   67

                                 EXHIBIT INDEX

<Table>
<Caption>
EXHIBIT  DESCRIPTION
-------  -----------
<S>      <C>
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").
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.
</Table>
<PAGE>   68

<Table>
<Caption>
EXHIBIT  DESCRIPTION
-------  -----------
<S>      <C>
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)    Information Systems Service Agreement dated as of April 6,
         1998 between WEG and Midway, incorporated by reference to
         Exhibit 10.27 to the Midway Annual Report on Form 10-K for
         the fiscal year ended June 30, 1998 (the "Midway 1998
         10-K").
10(q)    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(r)    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(s)    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(t)    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(u)    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(v)    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.
10(w)    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(x)    2000 Non-Qualified Stock Option Plan, incorporated by
         reference to Exhibit 10(dd) to WMS' Annual Report on Form
         10-K for the fiscal year ended June 30, 2000 (the "2000
         10-K").
10(y)    Employment Agreement between Scott D. Schweinfurth and WMS
         dated May 19, 2000, incorporated by reference to Exhibit
         10(ee) to the 2000 10-K.
10(z)    Employment Agreement between Orrin J. Edidin and WMS dated
         May 8, 2000, incorporated by reference to Exhibit 10(ff) to
         the 2000 10-K.
10(aa)   Employment Agreement between Robert R. Rogowski and WMS
         dated May 1, 2000, incorporated by reference to Exhibit
         10(hh) to WMS' Quarterly Report on Form 10-Q for the fiscal
         quarter ended September 30, 2000.
10(bb)   2000 Stock Option Plan, incorporated by reference to WMS'
         Proxy Statement for its 2001 Annual Meeting filed with the
         Commission on December 8, 2000.
10(cc)   Amendment 1 to Employment Agreement between Scott D.
         Schweinfurth and WMS dated June 4, 2001.
10(dd)   Amendment 1 to Employment Agreement between Orrin J. Edidin
         and WMS dated June 4, 2001.
10(ee)   Letter of Termination of Employment Agreement between Louis
         J. Nicastro and WMS dated June 14, 2001.
10(ff)   Employment Agreement between Brian R. Gamache and WMS dated
         as of June 15, 2001.
10(gg)   Amended and Restated Employment Agreement between Seamus M.
         McGill and WMS dated as of February 1, 2001.
10(hh)   Net Lease between Midway Amusement Games, LLC and Williams
         Electronics Games, Inc., dated August 3, 2001.
10(ii)   Settlement and Temporary Services Agreement dated August 31,
         2001.
10(jj)   Letter Amendment to Tax Separation Agreement dated September
         24, 2001.
21       Subsidiaries of the Registrant.
23       Consent of Ernst & Young LLP.
</Table>