WMS Industries, Inc. - Company Profile, Information, Business Description, History, Background Information on WMS Industries, Inc.

3401 N. California Avenue
Chicago, Illinois 60618

History of WMS Industries, Inc.

WMS Industries, Inc. is a worldwide leader in the design and manufacture of coin-operated entertainment machines. In addition to its line of pinball machines under the Williams, Midway, and Bally brand names, which together account for 70 percent of the world's pinball machine market, WMS produces video lottery terminal (VLT) machines, casino machines, and shuffle alley and other novelty games. Williams also maintains a strong presence in the video arcade and home video game markets, particularly with its best-selling Mortal Kombat series. Since 1994, WMS has held a long-term, worldwide license to produce and distribute arcade and home video games for Nintendo's 64-bit video system under a joint venture called Williams/Nintendo Inc. Headed by Louis and Neil Nicastro, who together hold more than 53 percent of the company's stock, WMS is also active in hotel and casino management, primarily in Puerto Rico. Sumner Redstone, head of Viacom, is a long-time stockholder, owning 24.6 percent of WMS through National Amusements, Inc. In its fiscal year ended June 1995, WMS reported revenues of more than $385 million, the largest part of which--$314.5 million--came through sales of its gaming machines and related products.

The modern pinball industry took off during the Depression era, and Harry Williams was one of the industry's first great game designers. In 1929, Williams graduated from Stanford University; five years later, his name was important enough to be a selling point in advertisements. Working for Los Angeles-based Pacific Amusements Company, Williams designed the first electromechanical pinball machine in 1933. That game, called "Contact," featured two solenoid-powered contact holes, which gave points when the pinball landed in them. The solenoid quickly became an industry standard, used to operate a variety of features on the pinball playing field. "Contact" was also the first pinball machine to feature electrically generated sound when Williams attached a doorbell to the machine. These innovations created boom years for the entire industry through the Depression.

While working for Pacific Amusements, Williams also designed games for other pinball makers, including Bally and Rock-Ola in Chicago. Williams was responsible for several more important innovations, including the kicker, the pedestal tilt, and pendulum tilt mechanisms. For years, pinball had been largely a game of chance, as the player had little influence over the course the ball took. Williams' designs were among the first to introduce skill elements to the game. He was also instrumental in introducing the first replay feature, allowing the player to compete for extra balls and free games, rather than prizes. This would be important for the entire industry, as more and more communities and states outlawed pinball as a game of chance.

Williams moved to Chicago, the center of the coin-operated amusements industry, in 1936, and for the next several years designed games for Bally, Rock-Ola, and other pinball manufacturers. The Second World War came close to shutting down the pinball industry, however, as raw materials made it impossible to build new machines. The war would later prove important to the industry in another way, as American GIs brought pinball machines to other countries, opening an international market that at times rivaled the market in the United States. In 1941, Williams joined with Lyn Durant, a designer who had also worked for Bally and Exhibit, to form the United Manufacturing Company. Their business was almost wholly in reconditioning and redesigning old machines.

Williams left United at the end of the war and in 1946 founded the Williams Manufacturing Company in Chicago. The most significant moment of the pinball industry's history occurred the following year, when another company, Gottlieb, introduced the first pinball machines featuring flippers. This innovation allowed the player greater control of the ball, transforming the game at last from a game of chance to one of skill. Through its early history, pinball had been banned at various times virtually everywhere in the United States. (San Francisco was the only community that had never banned the game; pinball prohibitions remained in force until the late 1970s in many other communities, including New York City.) As a game of chance that offered prizes and cash rewards, early pinball also suffered from its link to gambling and organized crime.

Williams, joined by Sam Stern, a former operator and distributor of coin-op amusement machines, brought out his first flipper pinball machine--called "Sunny"--in 1947. The postwar boom in the American economy created a huge demand for new pinball machines, and with raw materials once again in ready supply, manufacturers were soon making and selling thousands of units of each model they created. During the 1950s and 1960s, pinball boomed, dominated by Gottlieb. For most of this time, Williams and Bally would vie for second place. This era also saw the rise of another Chicago company, soon to become important for the Williams company. In 1948, the Seeburg Corporation, begun in 1903 as a piano maker and through the 1930s and 1940s a competitor with Wurlitzer for the jukebox market, brought out the first jukebox offering 100 selections. By the end of the next decade, Seeburg's jukeboxes captured 70 percent of the jukebox market. Seeburg would retain its leading position for the next two decades.

Harry Williams retired back to California in 1959 and Sam Stern took over Williams Manufacturing. In the following year, Stern retooled the company's manufacturing facilities. By then, Seeburg, which had revenues of nearly $30 million in 1960, had started an aggressive expansion campaign beyond the jukebox market. In 1958, it entered the vending machine business, selling cigarettes, and in the early 1960s expanded its vending machine business to include cigars, soft drinks, hot coffee, soup, candy, milk, and laundry products. Seeburg also went into the home music field, selling transistorized musical equipment and home stereo equipment. Meanwhile, Seeburg continued to sell its 100- and now 200-selection jukeboxes, retaining its market lead. A series of acquisitions, coupled with new product development, helped raise Seeburg's revenues to $76 million by 1964. In May of that year, Seeburg acquired Williams Manufacturing, reorganizing it as the Williams Electronics Manufacturing division. Late in 1964, Williams Electronics acquired United Manufacturing, which, led by Lyn Durant, who did not like flippered pinball, manufactured other types of coin-op amusement games, such as shuffle alleys. Williams paid $1.2 million for United and Sam Stern remained as president of the Williams division.

Seeburg consolidated its six manufacturing facilities into a new one million-square-foot facility in Chicago in 1965. With its Qualitone division, Seeburg manufactured hearing aids, and the company also moved into background music systems, including extensive copyright holdings used in its own recordings. In addition to making electronic organs through its 1963 Kinsman Manufacturing Co. acquisition, in 1965 and 1966 Seeburg acquired three more companies to make it one of the largest musical instrument manufacturers in the country. These three were Kay Musical Instrument Co., which made guitars, basses, and cellos; Gulbransen Co., which made quality pianos and organs and featured a 1,100-dealer distribution network; and N.H. White Co., which made band instruments under the King brand name. Revenues for 1965 reached $89 million, although profits dropped to absorb the costs of consolidating its manufacturing facilities. The following year, revenues jumped again to nearly $115 million. During this time, Louis Nicastro joined Seeburg as vice-president. By 1968, Nicastro had risen to become Seeburg's president. In that year, Seeburg was acquired by Commonwealth United Corp. of New York for $12 million.

Commonwealth, which produced films and television programs, had started up in 1967 with $6 million in revenues. From the start, Commonwealth launched a series of acquisitions, including Seeburg, that would raise its revenues to $155 million in its second year of operations. One year later, however, Commonwealth was in trouble, coming up short on cash for another acquisition. In 1969, Commonwealth lost some $60 million. Nicastro, who had joined Commonwealth's board but then returned to run Seeburg, became president and CEO of Commonwealth in 1970.

One year later, Nicastro spun off Commonwealth's main subsidiary, Seeburg, as Seeburg Industries, Inc. In that year, Commonwealth had posted a $1.6 million loss on sales of $54 million, while its Seeburg subsidiary had seen a $3.3 million profit on $53 million in sales. Under the reorganization plan, Nicastro, together with several partners, purchased Seeburg for $2.75 million, while assuming $9 million of Consolidated's debts of about $13 million. As Nicastro told Business Week at the time, "Nobody's delighted to accept any deal we propose. It's only the realization that the alternatives are worse." The spin-off was completed by 1973.

Nicastro moved Seeburg's headquarters to New York, where it would remain until 1990. By 1976, the new Seeburg's revenues had once again risen to more than $125 million. In 1977, Seeburg was renamed Xcor International. At this time, the pinball industry was undergoing a revolution of sorts with the introduction of the first solid-state pinball machines. Featuring far more exciting play than electromechanical machines, solid state quickly became the industry standard, and by 1977, Williams Electronics followed industry-leader Bally--which grabbed 70 percent of the then-$75-million market--and converted all of its machines to the new technology. By 1980, Williams was selling more than 60,000 pinball machines per year. However, while Williams remained profitable, it was not enough to prevent Xcor losses of $1.5 million in 1977. Revenues dropped through the next year, although Xcor managed to record a $5 million profit. But in 1979, Xcor once again posted a loss, now of $2.5 million. In that year, Xcor faced a $33 million debt with only $1.8 million in shareholder equity. Meanwhile, a new revolution was looming: the video arcade.

Begun with "Pong" in the early 1970s, video arcade games grew to a $70 million market by 1977. Its boom years, however, were shortly to follow. In 1979, Bally brought out the industry's first great hit, "Space Invaders," which was soon followed by Atari's "Asteroids." By 1981, the video arcade market would grow to $650 million. The boom would be too late to salvage Xcor, however. The Seeburg division declared Chapter 11 bankruptcy in 1979. And in 1980, Nicastro moved again to spin off his most profitable subsidiary, now Williams Electronics, which acquired about $18 million of Xcor's debt. Nicastro remained as chairman and CEO of both Williams and Xcor. Williams went public, selling 5 million shares at $12.25 per share; its shareholders, including Gulf & Western, kept 4 million shares. Nicastro also attempted to enter the burgeoning Atlantic City casino business by buying the Sands Hotel, but was rebuffed. Instead, Williams looked to Puerto Rico, purchasing a controlling interest in a new hotel-casino complex there. Xcor quickly faded from view, posting losses of $3.9 million on revenues of nearly $24 million in 1982.

Meanwhile, business boomed for Williams. While the video arcade business hurt pinball sales for most manufacturers, Williams' pinball sales actually grew, to $80 million in 1981, giving it the industry lead for the first time. But most important to Williams was its first entry into the video arcade. Its game, "Defender," introduced in 1981, was a smash success, becoming one of the top-selling arcade games of the time, with 50,000 machines ordered in its first year alone. Williams revenues soared to $150 million in 1981--some $110 million of which came from sales of Defender. By then the coin-op industry had grown to a $4 billion market. To accommodate demand for its video arcade machines, Williams scaled back pinball production, to as low as 2,300 machines in 1983. Nevertheless, Williams machines continued to top pinball sales, with five of the top nine selling machines in the early 1980s.

By the summer of 1982, however, the video market slowed. Despite the successes of such games as "Pac Man," "Galaxian," "Space Invaders," "Defender," and "Asteroids," the industry was unable to come up with strong followup games. The recession of the early 1990s also contributed to the slowing sales of video arcade machines. Williams attempted to introduce a pinball-video hybrid, called "Hyperball," which largely failed. Its sales began to dry up, dropping to $136 million in 1982. But the following year, the bottom fell out of the video market. Revenues from its amusement games fell by $65 million. Williams was unable to take up the slack with pinball sales. Despite about $39 million in revenues added by its hotel-casinos, Williams lost $14 million on revenues of $57.5 million in 1984. Williams stock, which had risen to $29 per share three years earlier, fell to $2 per share.

Losses continued through the next year. But by 1986, Williams' fortunes had turned again. Renewed interest in pinball, and successes with new pinball machines such as "Comet" and "Space Shuttle," set up the Williams 1986 introduction of one of the great pinball machines of all time, "High Speed," which posted initial orders of more than 7,500 machines. Williams casino holdings continued to do well, with its Condado Plaza in San Juan, Puerto Rico adding $11 million in revenues and operating profits of almost $4 million, bringing Williams a 1986 net profit of $3 million on revenues of $105 million.

Williams acquired Bally Manufacturing Co.'s pinball and video arcade game unit in 1988 for $8 million, giving Williams an 80 percent share of the pinball market, which in turn had grown to account for more than 20 percent of the $5 billion coin-op game industry. Under the Williams, Bally, and Midway names, Williams pinball production grew to about 35,000 by the turn of the decade; approximately 48 percent of its machines were now being shipped overseas. The company was renamed WMS in 1988, as its casino holdings grew to provide more than 40 percent of company revenues. Two years later, the company moved back to Chicago to be closer to its core gaming division. It also doubled its research and development (R&D) spending, to about $1.5 million per game, a move that would prove crucial to its success in the coming years.

In the 1990s, WMS moved into the home video game market, granting an exclusive licensing contract to Acclaim. Despite the success of WMS-designed titles such as "Mortal Kombat" and "NBA Jam," WMS licensing fees were meager compared to the earnings enjoyed by Acclaim. When that contract ended in 1995, WMS--which had acquired Tradewest Inc. and related companies for $15 million in 1994--began to market its video games through its newly formed Williams Entertainment Inc. subsidiary. In 1995, WMS also entered a joint venture with Nintendo of America Inc. as the exclusive creator and distributor of games for that company's new 64-bit video game system. The 1995 release of "Mortal Kombat 3" sold 250,000 copies in its first three days, bringing in around $15 million in just one weekend.

WMS next entered the VLT market in 1992, and soon after began producing casino gaming machines for the exploding casino industry. By 1995, WMS was licensed to manufacture and distribute its casino machines in 12 states, including Nevada and New Jersey, as well as in Australia and Canada, and its casino games had grown to an estimated $26 million in revenues. In that year, overall revenues jumped to $385 million, with sales in 1996 projected to reach $550 million. WMS faced a setback in late 1995 when it failed in an attempt to acquire Bally Gaming International, losing out to Las Vegas-based Alliance Gaming Corp.'s hostile takeover bid. Nevertheless, the company's troubled past seemed far behind it, and WMS's future in casino gaming machines appeared strong. As Neil Nicastro, company president and son of Louis Nicastro, told the Chicago Tribune: "[There] is not much we haven't ended up leading after entering."

Principal Subsidiaries: Williams Electronics Games, Inc.; Midway Manufacturing Company; Williams Innovative Technologies, Inc.; Lenc-Smith Inc.; WMS Games Parts & Service, Inc.; Williams Entertainment Inc.; WMS Gaming Inc.; Posadas de Puerto Rico Associates, Incorporated (Hotel and Casino operations); Williams Hospitality Group, Inc.

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Further Reference

Barnfather, Maurice, "Tilt?" Forbes, March 2, 1981, p. 42.Byrne, Harlan S., "The Mystery of Williams Electronics," Barron's, April 7, 1986, p. 30.Franklin, Stephen, "Pinball Power Puts Money into the Slots," Chicago Tribune, May 9, 1994, p. B9.Mehlman, William, "Williams Seen Benefiting From Video Game Shakeout," The Insiders' Chronicle, February 21, 1983, p. 1.Natkin, Bobbye Claire, and Steve Kirk, All About Pinball, New York: Grosset & Dunlap, 1977.------ "A Spinoff to Break a Fall," Business Week, September 25, 1971, p. 38.------ "New Player in the Video Game," Financial World, August 15, 1981, p. 22.

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